Rupee ends eight-day rally as Brent climbs to $112.40

The Indian rupee ended an eight-session winning streak on Thursday, October 22, closing 0.4% lower at 94.8175 against the dollar as Brent crude rose to its highest level since May. Economic Times Markets reported that mounting concerns about conflict in the Middle East pushed oil prices higher and weighed on global equities.

The currency reversed course after reaching its strongest level in more than six weeks earlier in the session. Large foreign inflows linked to Jio Platforms’ initial public offering had initially supported the rupee, alongside the Reserve Bank of India’s currency-defence measures. Those gains faded as crude prices climbed later in the day.

Traders cited widespread local demand for dollars, while international markets showed investors retreating from risk. MSCI’s All-World index was down 0.4%, on course for its steepest daily decline in two weeks. Technology shares weakened across Asian and European markets, and US equity futures pointed to a lower Wall Street opening.

Oil dependence puts the rupee under pressure

Brent was last quoted 3.3% higher at $112.40 a barrel. For India, which imports nearly 90% of its crude requirements, sustained high oil prices represent a substantial external vulnerability and a continuing risk to the currency.

The price rise reflected fears about the conflict even as oil shipments from the Gulf continued to hold up. In a note cited in the report, ING said the substantial conflict-related premium in oil prices was unlikely to ease without convincing signs of de-escalation and reassurance that regional supplies would remain uninterrupted.

How far should the RBI defend the currency?

The pressure has sharpened disagreement over how strongly the RBI should resist rupee depreciation. Senior International Monetary Fund official Krishna Srinivasan said on Wednesday that India should let the dollar-rupee exchange rate adjust as its initial defence against the shock.

Former RBI deputy governor Michael Debabrata Patra offered a different caution in remarks to Reuters cited by the report: exchange rates can move beyond levels justified by underlying conditions, creating risks to financial stability.