By Kimberley Kao
India's prime minister has urged locals to stop buying gold for a year, an appeal aimed at defending the country's foreign-exchange reserves as geopolitical headwinds keep buffeting the rupee.
Prime Minister Narendra Modi asked citizens in a speech on Sunday to avoid buying gold jewelry for functions, coming as the country's appetite for the precious metal continues to drive foreign-currency spending.
India is one of the world's largest consumers of gold, which is culturally significant and prized as an investment asset. The precious metal also forms part of the central bank's currency defense war chest, comprising roughly 17% of its forex reserves as of end-March.
Since war broke out in the Middle East in February, sending oil and gas prices higher, the rupee has weakened alongside other emerging-market currencies amid haven demand for the dollar and worries about an energy shock for importers like India. Inflation concerns have simultaneously dimmed gold's appeal, depleting the value of reserves.
The dollar was last trading 0.9% higher at 95.1900 rupees on Monday. Jewelry stocks in India were down, with Titan Co.--the country's biggest jeweler--tumbling 6.6%, while Senco Gold and Kalyan Jewellers India shed 8.3% each.
In a bid to curb capital outflows that are also pressuring the Indian currency, Modi urged citizens to reduce their consumption of petrol and fuel, encouraging them to work from home and reduce overseas vacations.
"Rising crude oil prices and global instability are putting severe pressure on India's foreign-exchange reserves," Devarsh Vakil at HDFC Securities said in a commentary.
"Reducing discretionary spending on gold imports and foreign travel could help the country conserve them," he added.
The path ahead for the rupee will depend in large part on how the Middle East conflict plays out.
Even if a resolution is struck soon, unwinding the economic damage won't happen overnight, analysts say. The surge in energy prices, spillover to other commodities and the hit to consumer and business confidence will take time to normalize.
Analysts at BMI, a unit of Fitch Solutions, noted that the rupee's depreciation has come despite interest-rate differentials moving in its favor in recent months and India's solid economic fundamentals.
However, they expect the Reserve Bank of India to move to contain the damage.
While the Iran conflict will weigh on the rupee, slowing profit repatriation, central bank intervention and India's robust long-term prospects will limit the pace of depreciation, BMI said.
Write to Kimberley Kao at kimberley.kao@wsj.com
(END) Dow Jones Newswires
05-11-26 0356ET
