Indian Rupee Declines 40 Paise to 94.88 Against US Dollar Amid Global Oil Price Surge

Indian Rupee Falls Against Dollar as Brent Crude Prices Surge

The Indian rupee opened 40 paise lower on May 11 as Brent crude prices jumped nearly 4 percent overnight, trading at $105 a barrel. This significant increase in oil prices was sparked by the United States' rejection of Iran's response to its peace proposal, fueling concerns of a prolonged blockade of the Strait of Hormuz, a vital energy route.

The rupee was trading at 94.88 against the dollar after ending the previous session at 94.48. This decline is reflective of the growing concerns over the impact of the Iran war on fuel prices. Over the weekend, Prime Minister Narendra Modi called for measures to curb fuel use, including work-from-home, carpools, and forgoing foreign travel for a year.

Iran's response to the American peace proposal, which included demands for an end to the war on all fronts, the lifting of sanctions, reparations, and recognition of Tehran's control over the Strait of Hormuz, has added to the volatility in the oil market. This, in turn, is having a ripple effect on the Indian rupee, which has been broadly mirroring moves in the oil market over the last several weeks.

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The Reserve Bank of India (RBI) and importers are on opposite sides of the spectrum, each trying to ensure that the rupee is in equilibrium. The RBI has been selling the greenback to prevent any sharp depreciation, while importers have been taking advantage of slightly lower levels to hedge their positions. The RBI's dollar buying has been a key factor in limiting the appreciation of the rupee, as highlighted by Amit Pabari, managing director at CR Forex Advisors, who noted that the Rs 93.50 – Rs 93.80 zone is likely to act as strong support for USD/INR.

The government has also taken steps to mitigate the impact of rising energy prices, including calling for a reduction in gold purchases and a cutback on the use of petrol and diesel. However, the immediate outlook for the rupee remains closely tied to the movements in the oil market, given India's heavy reliance on oil imports.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline