Rupee declines 15 paise against dollar on geopolitical worries, month-end flows

The Indian rupee opened 15 paise weaker at 95.38 against the US dollar on Tuesday (May 26), compared with Monday’s (May 25) close of 95.23/$, pressured by renewed geopolitical tensions in the West Asia, higher crude oil prices, and expectations of month-end dollar demand.

The local currency came under pressure after fresh US strikes in southern Iran dented optimism around a possible peace agreement between Iran and Israel. The escalation lifted global crude oil prices, with Brent crude futures rising more than 2% to around $98 per barrel after hitting their lowest level in over two weeks.

A rise in oil prices is typically negative

for the rupee as India imports a large share of its crude requirements, increasing the country’s dollar demand.

Traders also pointed to anticipated month-end importer demand and maturities in the non-deliverable forwards (NDF) market as factors likely to weigh on the domestic currency during the session.

“Pressure is likely to be on the upside on USD/INR, so it will also be key to watch if the central bank steps in to cap the pair,” a trader at a state-run bank said.

The rupee had recovered from last week’s record low of 96.96 per dollar, aided by easing expectations of an immediate regional conflict escalation and dollar-selling interventions by the Reserve Bank of India (RBI).

RBI Governor Sanjay Malhotra said that the central bank would do “whatever is required” to ensure orderly movements in the foreign exchange market.

Meanwhile, Indian banks have reportedly sought subsidised forex hedging costs from the RBI to support overseas borrowings, as policymakers look to boost dollar inflows into the economy.

Domestic inflation concerns also remained in focus after India raised compressed natural gas (CNG) prices on Tuesday (May 26), a day after state-owned fuel retailers increased petrol and diesel prices for the fourth time in May.

Following the fuel price hikes, analysts at Goldman Sachs raised their FY27 consumer inflation forecast for India by 10 basis points to 5.2% and projected two 25-basis-point RBI rate hikes in October and December.

Among key market indicators, the dollar index stood at 99.05, while the 10-year US Treasury yield was at 4.51%. One-month non-deliverable rupee forwards were quoted at 95.63.

Foreign portfolio flows remained mixed. NSDL data showed foreign investors sold a net $548.1 million worth of Indian equities on May 22, while purchasing a net $31.6 million worth of Indian bonds.

-With Reuters inputs