The Indian rupee slid to a record low on Friday, breaching the 96 mark against the US dollar, as rising crude oil prices and global uncertainties weighed heavily on the currency. The rupee touched 96.1350 during the session, slipping past its previous low of 95.9575 recorded just a day earlier. It later recovered slightly to close at 95.9650, marking a weekly decline of 1.5%.
So far this year, the rupee has weakened by over 6%, making it the worst-performing currency in Asia. Persistent foreign capital outflows and concerns over India’s external balances have added to the pressure, especially as the ongoing Iran conflict continues to push energy prices higher.
Oil prices fuel inflation concerns
Brent crude futures climbed more than 3% to around $109 per barrel on Friday. The sharp rise has intensified fears of global inflation and strengthened expectations that central banks may tighten interest rates sooner than anticipated.
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“The longer the conflict dragged on, the more the effects would manifest in the form of higher inflation, weaker economic growth, and a deterioration in external balances, especially for large net energy importers,” Hindustan Times quoted Khoon Goh, head of Asia Research at ANZ, as saying.
“Central banks in the region might be forced to tighten policy in response to the inflation shock as well as to stabilise exchange rates,” the note added.
Asian currencies broadly weakened between 0.3% and 0.8%, while regional equity markets saw declines of over 2%, reflecting broader risk aversion.
Trade deficit and inflation data signal stress
Fresh data pointed to a growing strain on India’s external sector. The country’s merchandise trade deficit widened to $28.38 billion in April, as disruptions linked to the Middle East conflict affected shipments and increased the cost of energy imports.
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India relies on imports for more than 80% of its crude oil needs and about 60% of its cooking gas, leaving it particularly exposed to global price swings.
The trade figures follow recent data showing wholesale inflation rising to a three-and-a-half-year high in April, adding to concerns about price stability.
Economists at Goldman Sachs expect consumer inflation to average around 4% in May after modest fuel price increases. They also project two rate hikes of 25 basis points each later this year, likely in October and December.
Bond yields and equities reflected the growing uncertainty. India’s 10-year government bond yield climbed to a five-week high of 7.07%, gaining 9 basis points over the week. Meanwhile, the benchmark Nifty 50 index declined more than 2% weekly.
