MUMBAI – India’s central bank likely sold dollars on July 24, helping the rupee avoid a record low amid pressure from surging oil prices and weak stocks.
State-run banks were spotted selling dollars just before the local market opened at 9am local time, most likely on behalf of the Reserve Bank of India (RBI), traders said.
The selling continued in early trade, pulling the rupee up to 96.50 per US dollar after it fell to 96.80 on the interbank order-matching system.
The currency was up 0.1 per cent from the previous session at 96.5725 at 10am. The rupee’s all-time low of 96.96 was hit in May.
Brent crude jumped 7 per cent to top US$100 a barrel for the first time in two months after Middle East developments pointed to worsening supply disruptions.
The Iran-backed Houthis in Yemen said they had attacked two Saudi oil tankers in the Red Sea while US President Donald Trump promised “major military punishment” for Iran and the Houthis.
“With Brent near US$100 and geopolitical risks still elevated, USDINR is expected to move beyond the 97.00 level, with 97.50 likely in the near term,” said Amit Pabari, managing director at foreign exchange advisory firm CR Forex.
India, which meets nearly 90 per cent of its crude requirements through imports, is particularly vulnerable to oil shocks.
Higher energy costs worsen the inflation outlook, strain external balances and weigh on the rupee through increased dollar demand.
Traders are keenly watching the RBI’s reaction amid sustained pressure on the rupee.
On July 24, the central bank’s intervention appeared to be stronger than earlier this week, a trader at a bank said.
It appears the RBI wants to “show its muscle” to deter speculative positioning but fundamental pressures point to further depreciation, the trader said.
Uncertainty about how much weakness policymakers are willing to tolerate has been among the factors weighing on the rupee, partly blunting the impact of a salvo of measures to draw capital inflows that have seen a robust response.
The RBI says it intervenes only to curb excessive volatility.
While Indonesia and the Philippines have raised interest rates in the face of inflationary and foreign exchange risks, India has kept them unchanged.
Economists expect the RBI will continue to hold in August.
Indian shares dropped, tracking Asian stocks with a focus on evolving tariff policies after the US imposed a 10 per cent duty on goods from India, while the European Union, Taiwan, Japan, South Korea face rates of 10 per cent to 12.5 per cent. REUTERS
