Rupee lingers around bottom of Asia FX pile as global headwinds deepen

The Indian rupee was among the worst performers in Asia this quarter and over the last 30 days, hit by worries over elevated crude prices and surging global bond yields that added to headwinds for local assets.

The currency declined 0.7% on the month and 1.2% in the July-September quarter, averting steeper losses largely on the back of persistent interventions by the Reserve Bank of India. On Wednesday, it closed at 95.83 per dollar, up from 95.98 in the previous session.

The South Asian unit navigated a tumultuous quarter which saw benchmark Brent oil prices swing between $70 per barrel and nearly $110 as conflict between the US and Iran ebbed and flowed.


"While higher oil prices may continue to weigh on the current account, we expect healthier capital flow dynamics and the RBI's broad policy toolkit, including the potential to raise rates if necessary, to keep the rupee rangebound," analysts at Goldman Sachs said in a note.

The Reserve Bank of India's monetary policy decision next week is expected to be a key driver, with markets widely anticipating a 25 basis point hike.

The seven-month old war in the Middle East has also stoked inflation concerns globally, which alongside worries over developed market government finances, lifted bond yields to multi-year highs, hurting emerging market assets.

The yield on 10-year and 30-year US Treasuries climbed 80 bps and 65 bps, respectively, over the quarter, while Indian bonds fared better, with the yield up only 40 bps locally.

Equities, meanwhile, remained regional underperformers as foreign investors continue to give a cold shoulder to a market without clear AI opportunities. India's benchmark stock index declined 5% compared to a roughly 1% gain for MSCI's gauge of regional stocks.

Much of the recent pressure on the rupee, has been absorbed by persistent dollar sales by the RBI that helped the currency avert a test of its record low of 96.96 hit in the previous quarter.

Measures to strengthen India's balance of payments rolled out in June have collectively drawn inflows of $143 billion up to September 18, per central bank data, bolstering firepower to support the currency.