The rupee fell 0.3% to 91.2350, its weakest level since early February, while benchmark stock indexes Nifty 50 and BSE Sensex were down about 1% each.
The U.S. and Israel launched strikes on Iran over the weekend. The military action resulted in the death of Iran’s Supreme Leader and sparked a wave of retaliation across the region from the country, raising the risk of protracted conflict in the Middle East.
Asian equities and currencies fell in response as investors dashed towards safe havens, looking to assess how a rise in oil prices could impact economies in the region.
Brent crude oil futures were last up nearly 6% on the day, after touching a peak of $82 per barrel in earlier trade.
“Higher oil prices present a compounded risk on top of the weak capital flows which have already been weighing on the rupee,” said Dhiraj Nim, an economist and FX strategist at ANZ.
The Middle East region caters to a little over half of India’s crude oil supplies and analysts warn that a prolonged conflict in the region could create macro-economic spillovers across the globe. Indian government bonds were under pressure on Monday as well, with the yield on the 10-year benchmark note up 3 bps at 6.6901%.
“If oil prices remain elevated for a while, they could raise troubles for Indian government bonds as well which have already been struggling with concerns over elevated fiscal supply,” ANZ’s Nim said.
Two traders at Mumbai-based banks said that price action indicated that the Reserve Bank of India was likely active in the non-deliverable forwards market while foreign banks were spotted offering spot dollars, offering some support to the rupee.
