The rupee has weakened about 0.7% over the past two sessions, with the latest move suggesting that the impact of higher oil prices is becoming more visible after the currency had shown greater resilience to crude price movements in recent weeks.
Brent crude remained above the $100-a-barrel mark on Thursday (September 10) amid escalating tensions between the US and Iran and concerns over disruptions to oil supplies. For India, which depends heavily on imports to meet its crude oil requirements, a sustained rise in oil prices can increase the country’s import bill and demand for dollars, putting pressure on the rupee.
RBI intervention offers some support
The Reserve Bank of India has continued to intervene in the foreign exchange market to contain excessive volatility and limit the pace of the rupee’s decline. However, traders said the central bank’s intervention is likely to temper the fall rather than reverse the underlying pressure if crude prices remain elevated.
The rupee’s recent moves also indicate greater sensitivity to oil prices compared with some other Asian currencies that are similarly exposed to higher crude prices, according to traders.
Why oil matters for the rupee
Higher crude prices are negative for the rupee because India pays for a large part of its oil imports in US dollars. When oil prices rise, importers need more dollars to make the same purchases, increasing demand for the US currency.
A weaker rupee, in turn, can make imported commodities more expensive and add to inflationary pressures if the currency remains under pressure for an extended period.
Global factors add to pressure
The rupee is also facing pressure from broader risk aversion in global markets. The US 10-year Treasury yield rose to its highest level since 2023, while weak domestic equities and foreign investor outflows have added to pressure on the currency.
Foreign institutional investors were net sellers of Indian equities worth ₹582.99 crore on Wednesday (September 10), according to exchange data.
The dollar index was trading at 98.84 on Wednesday (September 10), according to the data cited, after the rupee’s previous session saw it fall 34 paise to close at 95.08, with crude prices crossing the $100 mark.
For the rupee, the immediate focus remains on the trajectory of crude oil prices, developments in the US-Iran conflict, foreign fund flows and the RBI’s intervention in the currency market.
-With agencies inputs
