Indian rupee posts steepest weekly drop in a month on Mideast war-led turmoil

MUMBAI: The Indian rupee ended a tad lower on Friday and logged its worst weekly fall in over a month as the U.S.-Israel war on Iran sparked a surge in oil prices, jolting global markets and sparking a dash for safe-haven assets.

The Indian rupee hit a record low of 92.3025 per dollar earlier in the week but recovered sharply on the back of market interventions by the Reserve Bank of India. The currency ended at 91.74 on Friday, down 0.8% on the week.

Bankers said the central bank was active across spot, futures, forwards and non-deliverable forward markets, estimating it deployed about $12 billion to shield the Indian rupee.

The Middle East war exposes Asian economies such as India to both inflation and growth risks by hampering energy supplies and threatening a key destination for their exports.

“India is the most exposed to the Middle East-driven export demand, with China following closely behind,” Deepali Bhargava, regional head of research for Asia-Pacific at ING said in a note.

“A weaker FX profile across the region increases the risk of imported inflation and may restrain easing in the near term,” the note added.

These concerns also hurt India’s bond and equity markets, with the 10-year benchmark yield rising 4 basis points and the benchmark Nifty 50 falling 2.9% this week.

Traders said the outlook for the Indian rupee remains clouded by risks from the deepening conflict and the central bank may need to continue intervening to support the currency.

The dollar was on course for its best week in a year against major peers while crude oil was set for its sharpest weekly gain since February 2022, when Russia had launched its full-scale invasion of Ukraine. Brent crude oil futures climbed above $87 per barrel.

The U.S. Treasury Department is weighing actions to limit the increase in energy prices, a senior White House official said.