Rupee sees sharpest weekly drop in four months on oil worries

The Indian rupee experienced its steepest weekly decline in four months on Friday due to rising oil prices, which pressured Indian markets. The central bank's intervention helped curb the currency's drop, but it weakened by 0.1% to close at 95.55, marking its fourth consecutive day of decline. Over the week, the rupee dropped 1.1%, the most significant fall since mid-May when surging oil prices pushed it to a record low of 96.96.

Oil prices were projected to surpass $100 a barrel for the first time since mid-May, but they eased on Friday after a Financial Times report suggested Middle East foreign ministers were aiming for a temporary deal on shipping through the Strait of Hormuz. The rising oil prices and global bond yields have exerted downward pressure on the rupee this week, erasing much of an early September rally that pushed it to a two-month high near 94.30 per dollar.

RBI Governor Sanjay Malhotra stated that the central bank would need to support forex markets, with potential dollar sales aiding the absorption of excess INR liquidity from the banking system. Malhotra emphasized that the RBI is "not taking any tools off the table" to manage liquidity and keep the overnight rate aligned with the key repo rate, hinting at open market bond sales and FX swaps as possible measures.

Traders indicated the central bank may have executed dollar-rupee sell/buy swaps for the third day in a row to drain excess cash. The focus of markets shifted to forthcoming U.S. consumer inflation data due later on Friday, which would influence the case for a Fed rate hike. Forecasts centered on a 0.2% monthly increase in the core measure of CPI, but uncertainties leaned towards a higher figure. Experts believe the bar is not high for today's CPI to endorse a Fed rate hike next week.