The Indian rupee fell past the 96 per dollar mark on Tuesday to touch a two-month low as oil prices climbed, deepening investor worries about the impact on the energy-importing economy and fuelling portfolio outflows.
The rupee declined to a low of 96.1475 per dollar, down nearly 0.2% on the day, before trimming losses on likely intervention by the Reserve Bank of India.
Brent oil prices rose 2% to $107.4 per barrel as lingering concern over Middle East supply disruptions brought about by the US-Iran conflict outweighed signs of recovering crude exports from the region. [O/R]
Higher oil prices also weighed on regional stocks, with MSCI’s gauge of Asian equities down nearly 1%.
Stocks in Mumbai were also down nearly 1%, while global bond yields continued to drift higher as investors wagered that central banks would need to raise rates to fight inflation.
Persistent inflation, resilient economic growth and expectations of global rate hikes are also leaving India’s central bank with little reason to keep rates steady at its October policy meeting.
A rate hike would support the rupee by raising the cost of betting against it and boosting the appeal of Indian debt at a time when equities have struggled to attract inflows.
Overseas investors have net sold $3.7 billion of Indian stocks and bonds so far in September, bringing the year-to-date tally to $19.6 billion in outflows.
“The RBI’s evident intent to defend the 96 zone and the continuing swap inflows suggest that upside will remain limited, with 96.10-96.20 as a key resistance zone. A sustained break below 95.70 could open the way towards 95.20-95.00,” said Amit Pabari, managing director at forex advisory firm CR Forex.
