Indian rupee ends nearly flat as central bank intervention blunts oil strain

MUMBAI: The Indian rupee closed nearly unchanged on Thursday, hovering near its weakest level in two months, with support from likely central bank intervention countering pressure from oil prices’ rally towards $100 per barrel.

The Indian rupee closed at 96.5725 per dollar, little changed from its close at 96.5650 the previous session.

State-run banks were spotted offering dollars, most likely on behalf of the Reserve Bank of India, traders said.

Brent jumped 4% to over $98 a barrel, putting the psychological $100 threshold in striking distance, after Yemen’s Houthis said they had struck two Saudi oil tankers, heightening fears that global oil supply disruption could spread beyond the Strait of Hormuz.

Elevated oil prices present a key risk for India as they threaten to lift inflation, slow growth and widen the current account deficit.

Although Brent prices had dipped to near $70 per barrel last month, renewed hostilities in the Middle East have sparked a renewed surge and prompted investors to reload bearish wagers on the rupee.

Short positions on the Indian rupee have risen to an over one-month peak, per a Reuters poll.

“Geopolitical tensions and the resulting spike in oil prices have led to a recent unwinding of long INR positions. INR may remain exposed to swings in oil prices and risk sentiment,” analysts at BofA Global Research said in a note.

“Apart from widening the (current account) deficit, the stagflationary impact of higher oil prices leads to portfolio outflows from both equity and debt markets.”

India’s benchmark stock index Nifty 50 fell 0.5%, declining for the fourth consecutive session, while government bonds were on the backfoot as well, with the yield on the benchmark 10-year note fleetingly touching a one-month peak.

Elsewhere, traders were bracing for a hawkish European Central Bank meeting later in the day, with European shares and Wall Street futures in the red despite gains for most equity markets in Asia.