The Reserve Bank of India has intervened in the forex market after Rupee slipped part the 92/Dollar mark for the first on Wednesday.
The rupee fell 0.7% for the steepest intraday decline in at least a month to 92.08 per dollar, while India’s 10-year bond yields rose 5 basis points to 6.72%. The RBI is likely selling dollars in the forex market to prevent any further slide in rupee. One basis point is one-hundredth of a percentage point.
A sharp rise in crude oil prices due to the closure of the Strait of Hormuz amid an escalating Iran war, as well as weaker global cues across the board, pushed the rupee to a record low.
A $1 increase in crude oil prices adds nearly $1 billion to India’s import bill. That in turn weighs on the trade deficit, making rupee weaker and stoking inflation in the world’s fourth largest economy.
“A higher crude is a direct risk… We expect slightly heavier RBI intervention but if oil prices remain high, we may have to tolerate a weaker rupee,” Dhiraj Nim, forex strategist at ANZ Banking Group Ltd., told Bloomberg News, adding that his year-end forecast of rupee at 93/dollar could materialise much sooner given the current risk-off sentiment.
Brent crude rose above $82 a barrel after rallying about 12% over two days, the biggest gain since 2020. That’s well above the baseline projection of $70 that the RBI had assumed for the October-March period.