Rising crude prices and continued US-Iran tensions weigh on the Indian currency; forex reserves also decline
Mumbai, September 28: The Indian rupee weakened by 28 paise to close provisionally at Rs 96.03 against the US dollar on Monday, as heightened global risk aversion, higher crude oil prices and continued geopolitical uncertainty put pressure on the domestic currency.
The rupee opened at Rs 95.89 against the dollar in the interbank foreign exchange market and slipped further during the session to end at Rs 96.03, compared with its previous close.
Market sentiment was affected by continuing tensions between the United States and Iran. The US rejection of an Iranian proposal reduced expectations of an early reopening of the Strait of Hormuz, a major route for global oil shipments. Traders said uncertainty surrounding the situation has increased demand for safer assets while pushing crude prices higher.
Higher oil prices are particularly significant for India because the country relies heavily on imports to meet its crude requirements. An increase in energy costs can raise the demand for US dollars from importers and add pressure on the rupee.
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The currency’s decline came despite market attention on possible intervention by the Reserve Bank of India (RBI)
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Traders have recently reported dollar sales by state-run banks as the central bank seeks to limit sharp movements in the exchange rate
Foreign portfolio flows also remained a concern. Data showed that foreign institutional investors sold Indian equities worth Rs 3,693.93 crore on Friday, adding to pressure on the currency.
Meanwhile, India’s foreign exchange reserves fell by $14.88 billion to $765.90 billion in the week ended September 18, according to RBI data. The decline was mainly attributed to a fall in foreign currency assets.
The rupee’s movement in the coming sessions is likely to remain sensitive to oil prices, geopolitical developments and foreign capital flows.
