New Delhi India may continue paying for Iranian oil in foreign currencies until European Union sanctions take effect in July, when buyers will start using rupees, according to two people with knowledge of the matter.
India will waive taxes on rupee payments for crude, it said in its March 16 budget. That raised speculation refiners will start settling its oil bill with Iran in local currency to avoid international sanctions. While India could start paying for about 45 per cent of the oil in rupees from next month, the countries prefer to settle trades in foreign tender such as euros, the people said, declining to be identified because the information is confidential.
"We have been bearish on the rupee and this is just another reason to sell the currency," said Jonathan Cavenagh, a Singapore-based currency strategist at Westpac Banking, Australia's second-biggest lender. "The news is indeed negative for the rupee as it will increase demand for dollars in an already tight environment and further pressure the central bank's reserves."
The rupee weakened as much as 0.6 per cent to 51.0250 a dollar and was at 50.9225 at 11.32am in Mumbai.
R.C. Joshi, a spokesman for India's oil ministry in New Delhi, didn't return two calls made to his mobile phone seeking comment. Mohsen Qamsari, head of international affairs at the National Iranian Oil Co, was not available to comment when called at his office in Tehran.
India, Iran's second-biggest oil customer, is trying to maintain bilateral trade in the face of escalating economic and financial measures against the Islamic Republic over its nuclear programme.