Indian rupee drops to over one-week low as oil bubbles on Middle East worries

The Indian rupee slipped for a third consecutive session on Thursday, closing 0.3 per cent weaker at 95.44 per dollar, according to Business Recorder. That was its sharpest one-day decline since mid-July. The move came as oil prices extended their rise amid escalating tensions in the Middle East, while demand for dollars linked to derivative maturities and corporate hedging added pressure.

State-run banks were reportedly selling dollars, most likely for the central bank, though traders said the volume had eased from last week. Reuters, citing bankers, said the Reserve Bank of India had deployed at least $8 billion the previous week to keep the rupee above 95 per dollar. That intervention appears to have lost intensity as oil rose more than 6 per cent this week.

The central bank also ran dollar-rupee sell/buy swaps for a second consecutive day to drain surplus rupee liquidity from the banking system, with September and December maturities. As a result, the one-year annualised implied rate rose almost 30 basis points over two days to 3.37 per cent, its highest since late May. Elsewhere, most Asian currencies weakened while the euro held steady before the European Central Bank's policy decision.