Indian rupee trims losses after hitting record low, all eyes on oil prices

MUMBAI: The Indian rupee hit a record low on Thursday as the latest attacks on oil and transport facilities across the Middle East pushed up crude prices, likely prompting central bank intervention to limit the currency’s fall.

The Indian rupee fell to an all-time low of 92.3575 per dollar earlier in the day, but pared some losses as energy prices retreated modestly. The currency ended at 92.19, down 0.16% from the previous session.

Brent futures rose to a peak of $101.6 per barrel and were last quoted at $96.87. The conflict involving the U.S., Israel and Iran has spread across the Middle East, spurring plans for a record release of strategic oil reserves to help rein in one of the worst fuel shocks since the 1970s.

Asian stocks fell 1%, while India’s benchmark Nifty 50 by nearly the same amount. Equities in Europe were under pressure as well, and Wall Street futures pointed to a rough start.

The currencies of the world’s biggest energy importers, including India, have posted some of the steepest losses against the dollar since the start of the war. The Indian rupee has declined more than 1% in that period.

If oil prices average about $80 per barrel, the challenge associated with funding India’s current account deficit will increase substantially, analysts at ANZ said in a note. “This means amplified INR volatility.”

If oil prices average $100 a barrel for close to 12 months, India could also face a sharp slowdown in growth and higher inflation, according to economists.

Traders say that energy prices remain the key catalyst for the South Asian nation’s forex market in the near term, and they will likely override cues from macroeconomic data releases.

India’s February consumer price inflation data is due later in the day, with economists polled by Reuters anticipating a year-on-year print of 3.1%, up from 2.75% in the previous month.