Rupee slides on Israel-Iran conflict; central bank likely intervenes

The Indian rupee posted its worst day in more than a month on Friday after Israeli strikes on Iran's nuclear and military sites hit risk sentiment, prompting the central bank to step in to limit losses.

The rupee fell 0.6% to 86.08 per dollar at close, marking its biggest single-session fall since May 8. The currency, which slipped to a 2-month low of 86.20 earlier in the session, declined 0.5% week-on-week.

The Reserve Bank of India was on offers from 86.05 to 86.20 levels through the session, but the pressure on the local currency persisted, two traders said.

"Once the RBI intervened, there was a floor set for the rupee, and a large foreign bank began unwinding dollar long positions," said a trader with a private bank.

"RBI did support the rupee but did not make any effort to bring (the pair) down. We await further developments in the Middle East while trade issues are side-tracked for the moment," said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

Israel on Friday targeted Iran's nuclear facilities, ballistic missile factories and military commanders at the start of what it warned would be a prolonged operation to prevent Tehran from building an atomic weapon.

The strikes came amid mounting tensions over U.S. efforts to halt Iran's production of atomic bomb materials.

Crude prices spiked, with Brent potentially headed for its biggest one-day rise in over three years.

Oil is a major component of India's import bill. A $10 barrel increase in crude can widen the current account deficit by up to 0.4% of GDP, economists estimate, and can add up to 35 basis points to headline retail inflation.