Mumbai: The Indian rupee faced renewed pressure on Friday as rising international oil prices and higher US Treasury yields weakened its recovery against the dollar. The currency fell to 94.1575 against the US dollar, declining 0.1% from its previous close and reaching its weakest level in about a week. The latest decline reflects growing concerns about India's exposure to international energy prices and changes in global financial markets. Although foreign portfolio investment inflows into Indian equities had supported the rupee earlier in the week, rising oil prices and a stronger dollar weakened that support.
Brent crude, the international oil benchmark, reached $95.40 per barrel during Asian trading on Friday, following a 3% increase in the previous session. The rise came amid renewed tensions in the Middle East, where attacks involving oil infrastructure and shipping have raised concerns about the security of global energy supplies. Yemen's Iran backed Houthi movement claimed attacks on Saudi energy infrastructure, including facilities linked to the country's East West oil pipeline. Saudi Arabia's military coalition separately reported intercepting and destroying two drones, one near Riyadh and another in the Eastern Province. The developments have increased concerns about possible disruptions to oil production and transportation in the region.
The Strait of Hormuz, a narrow waterway connecting the Persian Gulf with the Gulf of Oman, remains particularly important to international energy markets. A significant share of the world's oil shipments passes through this route. Any prolonged disruption could increase transportation costs and push international crude prices higher. Saudi Arabia has used its East West pipeline to transport crude oil towards the Red Sea port of Yanbu, helping reduce its dependence on shipments through the Strait of Hormuz. However, continuing regional tensions have kept energy markets sensitive to developments.
Higher US Treasury yields have added another challenge for the Indian currency. The yield on the 10 year US Treasury note rose above 5% on Thursday, increasing pressure on emerging market currencies. US President Donald Trump's statement that Washington did not need a deal with Iran also contributed to market concerns and pushed US bond yields higher. Higher returns on US government securities can encourage investors to move money towards assets denominated in US dollars, increasing demand for the American currency and putting pressure on emerging market currencies. Investors are also considering the possibility of further interest rate increases by the US Federal Reserve, including a potential 50 basis point increase in December.
However, this remains a market expectation rather than a confirmed policy decision. India's dependence on imported crude oil makes the country particularly vulnerable to rising energy prices. India imported approximately 89% of the crude oil it consumed during the 2025 to 2026 financial year. When international oil prices increase, Indian companies need more foreign currency to pay for imports, adding to demand for dollars.
A weaker rupee can make these imports even more expensive in domestic currency terms. Higher energy costs can also affect transportation, manufacturing and the prices of other goods, adding to inflationary pressures on households and businesses. The latest inflation figures have added to these concerns. India's retail inflation increased to 6.09% in October, compared with 5.54% in September, according to government data released on November 12. The October figure exceeded the Reserve Bank of India's upper inflation tolerance limit of 6%.
Food inflation increased further to 8.94% in October from 7.74% in the previous month, indicating continued pressure on household spending. The increase presents an additional challenge for the Reserve Bank of India as it seeks to control inflation without unnecessarily slowing economic growth. India's external trade balance has also come under pressure. The country's merchandise trade deficit widened to $39.88 billion in October, compared with $30.21 billion in September, reaching its highest level in a year.
The trade deficit widened despite merchandise exports reaching a record monthly value of $49.47 billion. However, imports increased more sharply, reaching $89.35 billion in October. The figures highlight the pressure that increased import demand can place on India's external financial position. The Reserve Bank of India has already adopted a tighter monetary policy in response to inflationary concerns. In October, it increased the benchmark repo rate by 25 basis points to 5.50%. The decision was part of efforts to manage inflation and maintain economic stability.
The central bank's next Monetary Policy Committee meeting is scheduled for December 2 to 4. Investors will be watching for indications of how policymakers intend to respond to the latest inflation figures, currency movements and international oil prices. The rupee's latest decline highlights the challenges facing India's economy as geopolitical tensions, expensive energy imports, rising US interest rates and domestic inflation combine to create pressure on its currency. Future movements in international oil prices and the strength of the US dollar are likely to remain important factors influencing the rupee in the coming weeks.