Indian rupee sees sharpest weekly drop in four months on oil worries

MUMBAI: The Indian rupee slipped on Friday and fell over 1% week-on-week as a sharp rise in oil prices pressured Indian markets, though the central bank’s intervention helped limit the currency’s decline.

The Indian rupee declined 0.1% to end at 95.55, weakening for the fourth straight day. On the week, it declined 1.1%, the sharpest fall since mid-May when surging oil prices had pushed it to a record low of 96.96.

Oil prices were set to end the week above $100 a barrel for the first time since mid-May, though they edged lower on Friday after the Financial Times reported that Middle East foreign ministers were seeking a temporary deal on shipping through the Strait of Hormuz.

Higher oil prices and global bond yields have weighed on the rupee this week, erasing much of an early-September rally that took it to a two-month high near 94.30 per dollar.

“We will need to support the forex markets,” RBI Governor Sanjay Malhotra said in a media interview aired on Friday, referring to how the central bank’s potential dollar sales would aid the drainage of excess INR liquidity from the banking system.

The RBI is “not taking any tools off the table” to manage liquidity and keep the overnight rate aligned with the key repo rate, Malhotra said, pointing to open market bond sales and FX swaps among the options.

Traders said the central bank had likely conducted dollar-rupee sell/buy swaps on Friday for the third consecutive session, as a measure to drain excess cash.

Elsewhere, markets turned their focus to upcoming U.S. consumer inflation data due later on Friday. The data will impact the case for a Fed rate hike next week. Forecasts are centred on a 0.2% monthly rise in the core measure of CPI, although risks are seen skewed towards a higher number.

“We don’t think the bar is high for today’s CPI to endorse a Fed hike next week,” ING said in a note.