The Indian rupee retreated below the 95 per dollar mark on Tuesday, pressured by weakness in local stocks and elevated importer hedging as volatile oil prices kept investors on edge amid uncertainty over U.S.-Iran peace talks. The strain, however, was cushioned by intermittent dollar sales from state-run banks, most likely on behalf of the central bank, four traders said. Get the latest news from India and how it matters to the world with the Reuters India File newsletter.
The interventions have reinforced traders' views that the Reserve Bank of India is not comfortable with the rupee's persistent decline.
The currency has declined over 4% since the Iran war began in late February, and touched a record low of nearly 97 per dollar in mid-May before rebounding on RBI interventions. It was last at 95.15, down 0.2% on the day. India's benchmark equity index, the Nifty 50 (.NSEI), opens new tab, dipped on Tuesday, tracking regional equities amid growing doubts over the durability of a Middle East ceasefire. U.S. President Donald Trump said on Monday that talks with Iran were ongoing, while Tasnim News Agency reported that Tehran had suspended indirect negotiations with Washington. The U.S. and Israel's war with Iran has triggered the largest-ever disruption to the global energy market.
Iran has effectively halted nearly all non-Iranian shipping into and out of the Gulf since the war began, choking off about a fifth of global oil and liquefied natural gas flows and driving prices up by 50% or more. In the absence of a clear escalation or de-escalation in the war, traders expect Indian financial markets to be rangebound ahead of the RBI's monetary policy decision on Friday. Nearly 80% of economists in the May 22-29 Reuters poll expect the repo rate (INREPO=ECI), opens new tab to be kept unchanged at 5.25%. "The RBI may raise its inflation forecast and trim its growth estimate. Non-rate measures to defend the INR are likely," Barclays said in a note.
