The rupee slips to 94.66 as Brent holds near $97 on Hormuz risk

The rupee fell 10 paise to 94.66 against the US dollar in early trade on Tuesday, 8 September. It had opened at 94.49. Monday's close was 94.56 after a 13 paise drop. Brent crude was up 0.63 percent at $97.61 a barrel in the same window. West Texas Intermediate was near $92.95. The dollar index traded at 98.80, down 0.37 percent. Gold added $28.98 to $4,433.96 an ounce.

Equity markets opened in the same direction. The Sensex was down 278.64 points, or 0.37 percent, at 75,854.17 shortly after the open. The Nifty 50 was down 36.05 points at 23,743.10. On Monday the Sensex had already lost 382.62 points to 76,132.81 and the Nifty 118.55 points to 23,779.15. Twenty-three of the 30 Sensex members finished Monday lower. Infosys led the decline at 3.81 percent. Tech Mahindra, Tata Steel, Bajaj Finserv, UltraTech and TCS followed. Larsen & Toubro, Bharti Airtel, Maruti and Power Grid rose.

The common cause in every dealing-room note is the Strait of Hormuz. Six months of US-Iran fighting have kept seaborne oil at risk. Brent near $97 is the price of that risk. India imports the bulk of its crude. A rupee that is already past 94.50 feels each dollar on the barrel. Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, said the Reserve Bank's dollar sales and inflows under special foreign-currency schemes are what stop that combination from turning into a disorderly slide. "The RBI's intervention has been particularly important in preventing higher oil prices from translating into a weaker rupee."

Foreign institutional investors bought a net Rs 280.13 crore of Indian equities on Monday, according to exchange data. That bid was not enough to hold the indices. Ajit Mishra at Religare Broking described Monday as an extension of a corrective phase driven by geopolitics and by talk of another US rate move. Ajay Bagga called the market directionless and pointed to two years of poor returns in the headline indices. Those are desk opinions. The tape is simpler. Crude up, rupee down, IT and metals sold, defensive names bid.

The RBI has been in the market for months. Special deposit windows and swap lines, including the summer dollar facility that ICICI Bank and other lenders used, have pulled dollars onshore. Those dollars are now the buffer Bhansali is describing. They do not lower the oil price. They buy time for the currency while the oil price stays high. If Hormuz stays closed to routine traffic, that buffer will be tested again before the next policy meeting.

Tuesday's early print of 94.66 is not a panic number. It is a grinding one. Ten paise on an open of 94.49 is the kind of move that accumulates across a week of $97 crude. Importers will keep asking for dollars. Exporters will wait. The central bank will sell when the print runs. That is the current operating system. It holds until either Brent retreats or the intervention stock looks thin. Neither of those conditions was visible at the Tuesday open.