The Indian rupee endured its sharpest drop in more than a month on Monday to end at it weakest closing level on record as a run-up in crude prices battered the currency after U.S. President Donald Trump rejected Iran’s response to a U.S. peace proposal.
The rupee fell nearly 0.9% to 95.31 per dollar in its steepest single-day drop since March 27, tracking losses in regional peers.
Brent crude rose 2.5% to $103.8 per barrel as shipping through the Strait of Hormuz, a key energy artery handling about a fifth of global oil and liquefied natural gas flows, remained paralysed.
India’s benchmark equity index fell 1.5% and government bonds slid, with the yield on the 10-year benchmark jumping 6 basis points.
Over the weekend, Indian Prime Minister Narendra Modi urged a series of measures, including fuel conservation, fewer imports, as well as reduced travel, as a surge in energy prices takes a toll on the country’s foreign exchange buffers.
Higher oil prices are a major risk for net energy importer India and threaten to widen the country’s current account deficit, slow growth and stoke inflation.
“Structurally weak external funding conditions mean even a small widening of the current account deficit will continue to put pressure on the INR and FX reserves,” analysts at ANZ said in a note.
India’s foreign exchange reserves stood at $690.69 billion as of May 1, per central bank data.
While the reserves are adequate on traditional metrics, such as the number of months of goods imports they can cover, they have come off their record high of $728 billion hit in February, before the war began.
Elsewhere in global markets, the dollar index was little changed, hovering just shy of the 98 mark while equity futures pointed to a steady start for stocks on Wall Street.