Rupee weakens as oil prices surge, bond yields climb ahead of RBI meet

The rupee slumped 0.5 per cent to 96.31 against the US dollar on Wednesday, extending losses amid a broad-based strengthening of the greenback and capital outflows from emerging markets. The weakness in the local currency coincided with a sharp rise in benchmark bond yields, with the 10-year gilt climbing to 7.21 per cent as investors reassessed inflation and rate trajectory expectations.

International crude oil prices remained a key pressure point, with Brent crude crossing the $100-per-barrel mark. The surge in energy costs could potentially complicate India's inflation outlook and weigh on the current account, prompting fresh concerns in financial markets about the rupee's near-term stability.

The moves come as market participants brace for the Reserve Bank of India's monetary policy announcement. Investors are keenly watching for signals on rate trajectory amid persistent inflation pressures and external headwinds. Higher US Treasury yields have also pulled capital away from Indian assets, creating additional selling pressure on the rupee.

Analysts cautioned that the confluence of higher crude prices, strong dollar demand, and expectations around RBI policy could keep volatility elevated in currency and debt markets in the coming sessions. The rupee's weakness may partially offset import costs for energy-dependent sectors but could amplify inflation concerns if sustained.