Rupee Slides to 95.1850 per Dollar as Importers Bid Aggressively and Foreign Outflows Top 5 Billion Dollars
The Indian rupee depreciated for a third consecutive trading session on Monday, weighed down by stepped-up dollar demand from domestic importers, elevated global crude oil prices, and heavy foreign institutional outflows.
After opening little changed against the greenback, the local currency fell 0.3% during the session to settle at 95.1850 per US dollar. Over the past three sessions, the rupee has retreated roughly 0.8%.
Oil Price Shock Strains External Accounts
A significant driver of the rupee's ongoing weakness is the persistent surge in international energy prices. Benchmark Brent crude futures hovered near $115 per barrel during Asian trading hours on Monday, following three consecutive weeks of sharp gains. Crude prices have climbed about 13% over that timeframe, driven by fears of Middle Eastern supply disruptions following recent Houthi attacks on Saudi Arabia.
Because India imports more than 85% of its crude oil requirements, rising prices immediately inflate the country's import bill and expand the current account deficit. Elevated energy costs also increase the risk of imported inflation, squeezing corporate margins and eroding investor sentiment toward Indian financial assets.
Persistent FPI Outflows and Capital Shift
Depository data shows that foreign portfolio investors (FPIs) have net sold nearly $5 billion worth of Indian equities so far in October. This follows net equity sales of $3.75 billion recorded in September, highlighting sustained selling pressure from offshore funds.
Factors Driving Foreign Exits:
- Geopolitical Risks: Escalating regional conflicts continue to cloud corporate earnings outlooks and economic growth projections across oil-importing emerging markets.
- Reallocation Toward Tech: International liquidity has increasingly rotated out of traditional emerging markets and toward regions with concentrated exposure to semiconductors and artificial intelligence.
- Macro Uncertainty: Prolonged crude volatility has driven corporate treasuries to aggressively hedge upcoming foreign currency liabilities, increasing front-end dollar demand.
"If the geopolitical conflict continues, there will be pressure on oil prices, currency and broader earnings recovery," noted Vaibhav Shah, head of products, business strategy and international business at Mirae Asset Mutual Fund, adding that global capital has gravitated toward markets directly exposed to the chip and AI boom.
Thinning Intervention and Fed Watch
In preceding sessions, the currency had found a degree of support through Reserve Bank of India (RBI) intervention via state-run banks and inflows related to high-profile corporate fundraises, including the Jio Platforms initial public offering. However, foreign exchange traders noted that the absence of aggressive RBI dollar-selling on Monday left the market exposed to heavy bids from oil marketing companies and commercial importers.
Market participants are now closely watching the upcoming US Federal Reserve monetary policy meeting on Wednesday. While the US central bank is widely expected to pause interest rate hikes, traders will scrutinize Fed Chair commentary for signals on the future trajectory of borrowing costs and the US dollar index.
