New Delhi: As a sharp surge in global crude oil prices to above $130 threatened to push up imported inflation and widen the country’s trade and current account deficits, the energy-sensitive Indian rupee hit a lifetime low in early trading on Monday.
More than two-thirds of oil needs are imported by India, and high prices are likely to increase its trade and current account deficits and boost imported inflation.
The partially convertible rupee was trading at 76.86/87, against the dollar by 0545 GMT, after having touched 76.96 for its weakest level ever. It closed Friday at 76.16.
The rupee has struck it’s previous record low, of 76.9050 on April 22, 2020, in the grip of the COVID-19 pandemic.
A senior trader at a private bank told Business today that there was some dollar selling that came in from state-run banks soon after the rupee touched life lows.
He further added, “But depending on how stocks perform, we can see the rupee weaken again unless there is heavy intervention.”
Normally the Reserve Bank of India sells dollars via state-run banks. It does so to prevent sharp moves in the rupee. With forex reserves at $631.53 billion by early March, traders feel it has enough firepower to avert a much sharper fall in the currency.
The major concern here is whether the RBI will be forced to act to contain inflation by raising interest rates in the aftermath of the Ukraine crisis.
So far, the RBI has restated it’s its commitment to reviving economic growth and keeping policy accommodative.
Prices of oil soared more than 9%, touching their highest since 2008.
Economists and analysts, last week stated that India’s trade and current account deficits were likely to widen, putting pressure on the rupee, as global oil prices surge and the domestic economy re-opens from a third wave of the pandemic.
The 10-year bond yield was trading at 6.88%, up 7 basis points on the day.
The domestic shares and moves in global crude for further direction during the session will be monitored by the traders.
More than 2% Indian shares tumbled, with investors dumping risky assets as oil prices soared after the United States and European allies were said to be mulling a Russian oil import ban.
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