Rupee on shaky ground, touches fresh low of 93.73

The Indian rupee plunged as much as 110 paise on Friday, recording its steepest single-day rout since late 2022, after oil surged amid an unrelenting barrage of attacks by either side on respective energy installations in West Asia. It slumped to a historic low of 93.73 amid a report that New Delhi paid a significant price premium for its Thursday oil supplies before the unit closed at 93.71/$.

The pace of decline was rather quick, seemingly compensating for the Thursday trading holiday in Mumbai, with traders saying that market estimates of the central bank’s short dollar positions and sustained sales of Indian equity assets by overseas investors further pressured the rupee, which has lost more than 2.5% since the start of the Iran war.

The Reserve Bank of India (RBI) sold dollars at multiple levels on Friday, but traders said its interventions were aimed only at moderating the pace of depreciation, not reversing the pronounced downward trend.

“If the current trends continue, the rupee could weaken toward 94/$ to 95/$ levels, but the outlook remains highly fluid,” said Lakshmi Iyer, Group President, Investments, Bajaj Finserv. “Up until now, we have already seen reasonable intervention from the central bank, but beyond a point, the currency has to reflect the market equilibrium.”

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

“With sustained FPI outflows and geopolitical uncertainty, the market is still searching 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 consistently declined, crossing the 93/$ mark in the first hour of the day.Traders said the RBI sold dollars at all key levels, 92.90/$, 93/$ and 93.50/$.

“There has been no positive news for the rupee since the war started, and though such a large fall wasn’t expected, it is understandable,” said Anil Bhansali, Head of Treasury at Finrex Treasury Advisors. “Importers are buying dollars to hedge their positions at almost all levels because they expect the currency to decline further, and at the same time, exporters have largely stopped hedging.”

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

Crude Oil India Basket stood at $156 per barrel on March 19, Petroleum Planning and Analysis Cell (PPAC) data showed, implying that India is paying a premium of $46 per barrel.

Brent crude prices are 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 caused damage that could cripple natural gas supplies for multiple years.

“Geopolitical tensions and their impact on crude prices will influence rupee levels. At the onset of the West Asia crisis, the rupee was expected to be between 93/$ to 94/$,” said Sameer Karyatt, MD and Head of Trading at DBS Bank. “But continuation in the conflict and upward pressure on crude oil prices are likely to guide the rupee towards the 94.50/$ 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 weigh on economic growth by raising input costs for businesses and reducing consumption demand.