The rupee is almost flat as central bank intervention eases oil pressure

The Indian rupee closed almost unchanged on Thursday, near its weakest level in two months, supported by potential central bank intervention to counter pressure from oil prices rising above $100 a barrel.

The rupee closed at 96.5725 per dollar, little changed from the previous session’s close of 96.5650.

State-run banks were seen offering dollars, mostly on behalf of the Reserve Bank of India, traders said.

Brent rose 4% to $98 a barrel, within striking distance of the psychological $100 threshold, after Yemen’s Houthis said they attacked two Saudi oil tankers, raising fears that a global oil supply disruption could spread beyond the Strait of Hormuz. (O/R)

Elevated oil prices pose a major risk to India as they threaten to exacerbate inflation, slow growth and widen the current account deficit.

Although Brent prices fell to near $70 a barrel last month, renewed hostilities in the Middle East fueled a renewed surge and prompted investors to reload bearish returns on the rupee.

Short positions on the Indian rupee rose to a one-month high in a Reuters poll.

“Recent initiation of long INR positions is due to geopolitical tensions and the resulting rise in oil prices. The INR may remain exposed to oil price changes and risk sentiment,” analysts at BofA Global Research said in a note.

“Besides widening the (current account) deficit, the stabilizing effect of higher oil prices leads to portfolio outflows from both equity and debt markets.”

India’s benchmark stock index Nifty 50 fell 0.5% for a fourth straight session, while government bonds were also on the backfoot, with the yield on the benchmark 10-year note briefly touching a one-month high.

Elsewhere, traders braced for a hawkish European Central Bank meeting later in the day, with European shares and Wall Street futures in the red despite gains for most Asian equity markets.