The Indian rupee slipped to a two-month low of 96.1450 per dollar on Tuesday, crossing the critical 96 threshold for the second time in two weeks as an escalating oil price shock and heavy foreign investor withdrawals intensified pressure on domestic currency markets.
India’s currency weakness deepened sharply as Brent crude oil breached the USD 108 per barrel mark, driven by supply concerns in West Asia after the United States rejected a peace deal proposal from Iran. The currency slide reflects intense risk-off sentiment across global markets that has simultaneously hammered domestic equities and lifted Treasury yields.
Escalating Oil Prices and US-Iran Stalemate Push Rupee Past 96
The currency’s latest descent past the psychological 96 mark follows a breakdown in diplomatic efforts between Washington and Tehran. By Tuesday, benchmark energy costs climbed further, with ThePrint noting that Brent crude futures traded higher by 3.57 per cent at USD 108.04 per barrel.
Currency analysts point directly to these deteriorating global risk conditions as the primary catalyst for the rupee’s drop.
The Indian rupee declined by nearly 20 paise on risk-off sentiments in global markets after the US rejected a deal proposal by Iran, diminishing hopes of reopening the Strait of Hormuz. Brent crude oil breached the USD 108 per barrel mark while global equities tanked.
Anuj Choudhary, Research Analyst, Mirae Asset Sharekhan, via ThePrint
Foreign Outflows and Broad Equity Market Tumble Amplify Pressure
The currency depreciation has unfolded alongside a steep correction in Indian equities and substantial capital flight. Foreign institutional investors offloaded equities worth Rs 5,353.22 crore on a net basis during the Monday session, contributing to a broader monthly exit of $3.7 billion withdrawn by foreign investors from Indian markets throughout September.
Domestic stock indices sustained heavy losses as risk aversion swept the trading floors. The Sensex tumbled 1,124.02 points to settle at 72,771.72, while the Nifty fell 360.25 points to close at 22,780.25. Concurrently, the 10-year government bond yield rose about 5 basis points to 7.16%, while the dollar index strengthened to 101.12.
Reserve Bank of India Defends Key Thresholds as Reserves Decline
The Reserve Bank of India has stepped in repeatedly to cushion the currency from more severe shocks, utilizing foreign exchange reserves to limit volatility and defend the 96 handle. Official data released on Friday revealed that India’s foreign exchange reserves declined $15 billion week-on-week as of September 18, illustrating the heavy financial toll of defending the exchange rate.
Despite persistent downward momentum, analysts emphasize that central bank backing has kept short-term volatility expectations remarkably subdued. The rupee’s 1-month implied volatility hovered at 4.2%, staying comfortably below its year-to-date average of 5%.
Market watchers anticipate that falling risk assets and elevated crude prices will continue testing the central bank’s resolve. Falling risk assets and surge in crude oil prices may continue to pressurise the rupee. However, any intervention by the RBI may support the rupee at lower levels,
noted Anuj Choudhary, adding that traders are closely monitoring upcoming speeches from Federal Open Market Committee members for further direction.
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