MUMBAI, July 22 (Reuters) - The Indian rupee fell to a two-month low on Wednesday as oil prices climbed on mounting fears of supply disruptions through key Middle East shipping routes, although dollar sales by state-run banks limited the local currency's losses.
The renewed escalation in the Iran conflict has driven oil prices up more than 25% this month, leaving the rupee increasingly vulnerable as higher energy costs threaten to stoke inflation and widen India's current account deficit.
The rupee declined 0.3% on the day to end at 96.5650, drifting towards its all-time low of 96.96 hit in May.
Brent crude prices rose about 5% to over $95 per barrel on escalating hostilities between the U.S. and Iran and threats to shipping by the Iran-backed Houthi militia in Yemen.
"The Houthis' announced maritime blockade on Saudi Arabia ... would force tankers to enter and exit the Red Sea via the Suez Canal, adding significant time and expense to voyages to Asia," analysts at ING said in a note.
A renewed rally in oil prices this month has strained the rupee even as a string of policy measures announced in June continues to buoy the outlook for India's balance of payments for the fiscal year ending March 2027.
The RBI's package of measures aimed at supporting the rupee attracted more than $20 billion as of July 17 and economists reckon that a part of it was used to unwind a portion of the central bank's over $100 billion forward dollar liabilities.
On Wednesday, traders said that state-run banks were offering dollars around 96.50-96.55 levels, most likely on behalf of the RBI.
Meanwhile, Indian stocks dropped about 1% while the yield on the 10-year benchmark bond drifted higher. Global markets are awaiting earnings from tech majors Alphabet and Tesla later in the day.
Reporting by Jaspreet Kalra; Editing by Ronojoy Mazumdar and Nivedita Bhattacharjee
Source: Reuters