The currency had opened at 96.34 per dollar, down 10 paise from Tuesday’s (July 21) close of 96.24/$, before extending losses during the session. The move brings the rupee closer to its all-time low of 96.96/$.
The latest decline comes as Brent crude climbed to around $94 a barrel, with markets pricing in the risk of supply disruptions following continued hostilities between the United States and Iran. Concerns over shipping routes through the Strait of Hormuz and the Red Sea have kept a geopolitical risk premium embedded in oil prices.
Why the rupee is under pressure
Higher crude prices typically hurt the rupee because India imports the bulk of its oil requirements. Costlier oil raises demand for dollars from importers, widens the trade deficit and adds to domestic inflationary pressures.
At the same time, geopolitical uncertainty has increased demand for US assets, keeping the dollar firm against emerging market currencies.
Bond market signals add another layer
Elevated global bond yields are also limiting support for emerging market currencies.
According to a Bank of Baroda Research report, sovereign bond yields remained high in July as investors reassessed inflation risks amid the surge in crude oil prices and the conflict in West Asia.
While India’s benchmark 10-year government bond yield has risen only modestly this month compared with major global peers, the report cautioned that a further escalation in geopolitical tensions and another spike in oil prices could push domestic yields higher.
Higher bond yields generally translate into higher borrowing costs and can support the US dollar by keeping interest rate expectations elevated, adding another headwind for currencies such as the rupee.
RBI support remains a cushion
Despite the recent weakness, traders expect the Reserve Bank of India to continue smoothing excessive volatility. The RBI’s recent measures to attract FCNR(B) deposits have already generated sizeable foreign currency inflows, which could strengthen forex reserves and enhance the central bank’s ability to support the currency.
However, with crude prices continuing to rise and geopolitical risks showing little sign of easing, analysts expect the rupee to remain under pressure in the near term.
