Indian Rupee Declines 22 Paise to 95.31 Amid Ongoing Oil Price Volatility

Rupee Hits Record Lows as Brent Crude Prices Surge

The Indian rupee opened 22 paise lower on May 5, testing record lows, after Brent crude prices remained elevated following a United States-Iran flare-up over the control of the Strait of Hormuz, the world's most important energy shipping route, adding to supply concerns.

The rupee was trading at 95.31 against the dollar after closing at a record low of 95.09 in the previous session. The rupee sank to an all-time low of 95.33 on April 30. The current situation has raised concerns among market participants, who believe that the rupee's downward trend may continue in the near term.

Brent crude prices jumped overnight to trade at near $114 a barrel after Iran attacked multiple ships in the Strait of Hormuz and started a fire at a vital United Arab Emirates oil port. This development has increased tensions in the region and is likely to deter ship owners from considering transit through the Strait of Hormuz. According to ANZ Bank, this dynamic would keep oil prices higher.

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India meets around 85 percent of its energy needs through imports. Higher Brent crude prices add to the country's import bill, widening the current account deficit, which weighs on the currency. Market participants believe that the rupee is unlikely to see any meaningful relief unless there is a sizeable cooling in crude prices.

The Reserve Bank of India (RBI) will look to arrest a free fall in the currency by intervening in the market, albeit passively, market participants said. On the other hand, oil companies are also taking advantage of these levels to hedge their positions, adding to the dollar demand.