Indian rupee risks more losses after post-RBI policy slide, higher oil adds to woes

MUMBAI: The Indian rupee’s drop after a Reserve Bank of India rate hike and stance change on Wednesday that some economists said was hawkish has ​left the currency vulnerable to further losses, with higher oil ‌prices adding to pressure.

The Indian rupee fell 0.4% on Wednesday to 96.7750 per dollar, its weakest level since mid-May, just 18 paise shy of its all-time low of 96.96.

The fall ​was notable since it came after days in which the ​RBI had appeared comfortable with only a measured weakening. The ⁠slide surprised several market participants, particularly considering that external cues had not ​deteriorated materially.

“The fall reflects a catch-up in domestic positioning and hedging after ​the RBI’s policy decision,” a currency trader at a private sector bank said.

“Yesterday’s move has set the rupee up for further losses, and today’s session will be key ​in determining whether the RBI is comfortable allowing the currency to reset ​to a weaker level.”

The 97 per dollar mark will be important for near-term flows, he added, noting ‌that ⁠a break past that threshold could prompt importers to step up hedging, while exporters may hold back.

Hawkish hike

Goldman Sachs characterised the RBI’s move as a hawkish rate hike, pointing to the change in stance and the central bank’s communication. ​The brokerage expects the ​repo rate ⁠to rise by another 25 basis points in December.

Oil pressure

Adding to the rupee’s woes on Thursday is a further rise in oil ​prices, which have been a key source of pressure ​on ⁠the currency in recent months. India relies on imports for most of its crude oil requirement.

Brent crude climbed more than $2 to above $102 a barrel on Thursday on persistent ⁠worries about ​supply from the key Middle East producing ​region amid an increase in attacks on shipping in the Gulf and the Strait of ​Hormuz.