MUMBAI - The Indian rupee tumbled towards record lows on Monday amid frail risk sentiment and as oil importers ramped up dollar demand expecting a jump in crude prices, with traders adding that the central bank tried to stem the local currency's losses.
The partially convertible rupee declined 0.65% to 81.8725, falling in line with its Asian peers. It fell up to 81.9175 during the session, just shy of a record low of 81.95 hit last week.
Traders said the Reserve Bank of India sold dollars at 81.85-81.90 levels to curb the depreciation in the currency.
Stocks fell heavily as oil jumped 4% after reports said producer club OPEC+ was considering slashing output to support a recent downturn in prices.
"A significant surge in crude oil prices is leading to a lot of dollar demand by oil importers (in India) and that is weighing on the domestic currency," said Sugandha Sachdeva, VP of commodity and currency research at Religare Broking.
Now, there are concerns around foreign portfolio flows into equities, which is further pressurising the rupee, she added, saying the OPEC+ meeting on Wednesday would be a key event.
The move in the crude market only added to investors' worries about aggressive interest rate hikes leading to a global recession, and sparked a beeline out of risk assets.
Indian stocks shed 1.2%, accelerating losses towards the end of the session, as European stock indexes plunged.
Overseas investors have turned net sellers of Indian stocks recently — having withdrawn about $2.5 billion over the last seven trading sessions — likely fuelled by mounting concerns over the economic outlook in the U.S. and other developed nations.
The further rise in Treasury yields and the volatility in U.K. assets have also weighed on demand for risk assets.
The dollar index firmed 0.3%, even as the UK government scrapped its massive tax cuts plans, which had boosted the sterling briefly.
(Reporting by Anushka Trivedi & Nimesh Vora in Mumbai; Editing by Savio D'Souza)