Rupee touches fresh low of 93.73 on volatile ground

The Indian rupee tumbled as much as 110 paise on Friday, recording its sharpest one-day fall since late 2022, as oil rose amid an unrelenting barrage of attacks by both sides on related energy installations in West Asia. The unit tumbled to a historic low of 93.73 on Thursday amid reports that New Delhi paid a significant price premium for its oil supplies before settling at 93.71/$.

The pace of decline was fairly brisk for Thursday’s trading holiday in Mumbai, with traders saying the central bank’s short dollar position and market expectations of continued selling of Indian equity assets by foreign investors put further pressure on the rupee, which has lost more than 2.5% since the start of the Iran war.

The Reserve Bank of India (RBI) sold the dollar at multiple levels on Friday, but traders said its intervention was aimed only at controlling the pace of devaluation, not reversing the pronounced downward trend.

“If the current trends continue, the rupee may weaken towards 94/$ to 95/$ levels, but the outlook remains very fluid,” said Lakshmi Iyer, Group President, Investments, Bajaj Finserv. “So far, we have already seen reasonable intervention from the central bank, but beyond a point, the currency has to reflect the market balance.”

The rupee closed at 92.63/$ on Wednesday, LSEG data showed.

“With continued FPI outflows and geopolitical uncertainty, the market is still looking for stability and calling a firm range right now would be like throwing darts in the dark,” Iyer said.

One way ticket

The rupee opened at 92.89/$ on Friday and fell steadily after crossing the 93/$ mark in the first hour of the day.

Traders said the RBI sold the dollar at all key levels, 92.90/$, 93/$ and 93.50/$.

Anil Bhansali, head of treasury at Finrex Treasury Advisors, said, “There has been no positive news for the rupee since the war started, and such a big drop was not expected, which is understandable.” “Importers are buying dollars to hedge their positions at almost all levels as they expect the currency to fall further, and at the same time, exporters have largely stopped hedging.”

Bhansali expects the rupee to trade in a range of 93.25/$ to 94.25/$ on Monday, as crude oil prices continue to hover above $100 per barrel.

The crude oil India basket stood at $156 per barrel on March 19, with Petroleum Planning and Analysis Cell (PPAC) data showing that India is paying a premium of $46 per barrel.

Brent crude is trading at $110 per barrel.

Reuters reported that Tehran attacked an oil refinery in Kuwait on Friday, even as Tel Aviv vowed to avoid further attacks on Iran’s South Pars gasfield, a day after an Iranian retaliatory strike on Qatar was damaged that could cripple natural gas supplies for several years.

“Geopolitical tensions and their impact on crude prices will influence rupee levels. At the onset of the West Asian crisis, the rupee was expected to hover between 93/$ to 94/$,” said Sameer Karyat, MD and Head of Trading, DBS Bank. “But continued conflict and pressure on crude oil prices is likely to guide the rupee towards the 94.50/$ to 95/$ range,” he said.

Rising crude oil prices fuel inflationary pressures and widen India’s current account deficit by increasing the import bill. They also emphasize economic growth by increasing input costs for businesses and reducing consumption demand.