Indian rupee ends higher, Middle East conflict to keep RBI support in play

MUMBAI: The Indian rupee logged its biggest one-day gain in a month on Thursday after the Reserve Bank of India stepped in aggressively to shore up the currency, with bankers expecting the central bank to stay on guard as geopolitical risks persist.

The Indian rupee touched a peak of 91.4125 in before ending the day at 91.60 per dollar, up 0.6% on the day.

India’s benchmark indexes rose 1% and most Asian stocks were also higher while currencies traded mixed.

Traders pointed to aggressive dollar sales by state-run banks, which lifted the Indian rupee after it fell to a record low of 92.3025 on Wednesday.

Choppy moves in oil prices also steered the Indian rupee on Thursday, with traders focused on developments in the ongoing conflict between U.S.-Israel and Iran.

The war entered its sixth day on Thursday, with Israel launching a wave of missiles on Tehran after Iranian missiles sent millions of Israelis into bomb shelters.

While risk-on trading was seen on news headlines suggesting the conflict may be shorter than feared, uncertainty remains and is expected to keep the Indian rupee under pressure.

“We anticipate continued depreciation pressure on the INR … The Reserve Bank of India (RBI) is expected to intervene to mitigate excessive volatility and sterilize these actions to maintain INR surplus liquidity within the system,” said Sameer Karyatt, head of trading at DBS Bank India.

The dollar index was a tad higher at 98.9, while Brent crude oil prices rose nearly 2% to nearly $83 per barrel.

“A prolonged conflict would increase downside risks for the global economy and the risk of a more persistent inflation shock,” MUFG said in a note.