The Indian rupee (INR) fell sharply by as much as 35 paise to 65.03 against the US dollar (USD) today as crude oil prices surged to their highest since mid-2015, raising concerns about the inflation outlook. The rupee had closed at 64.68 against the US dollar yesterday. A fall in the domestic stock market as well as fresh dollar demand hurt the rupee, say traders. Globally, crude oil prices have risen to over 2-year high amid political upheaval in top crude exporter Saudi Arabia. The political upheaval in Saudi Arabia also spurred concerns of Middle Eastern money pulling out of global financial markets.
5 things to know about rupee’s (INR) decline against US dollar (USD) today:
1) Some analysts have expressed concern over macro-economic impact of rising global crude prices on Indian economy and its impact on the rupee. Ajay Bodke, CEO & Chief Portfolio Manager at domestic brokerage Prabhudas Lilladher said, “India needs to keep a cautious eye on the surge in global crude prices as every $1 per barrel rise in crude prices leads to its import bill rising by $ 1.33 billion. Also, a rising import bill can put downward pressure on rupee.”
2) India’s import bill rises by $1.03 billion for every one rupee weakening in rupee vis-a-vis US dollar, Mr Bodke added. “In a fiscally constrained environment a weakening rupee can also lead to higher fiscal deficit if the government decides not to allow OMCs (oil marketing companies) to hike petrol and diesel prices for consumers and decides to absorb the increased fuel import bill.”
3) Higher global crude oil prices could also lead to prices of crude derivatives moving up impacting the raw material costs of companies across the sectors and leading to margin pressure. “An exuberant Indian equity market needs to digest the far-reaching implications of the grave geo-political developments unfolding in the Middle-East seriously,” Mr Bodke said. The Sensex was down over 300 points in afternoon trade.
4) Despite today’s weakness in the rupee, the Indian currency has rallied against the US dollar this year. It is up around 5 per cent against the US dollar so far this year.
5) Strong inflows into Indian debt market and optimism about economic recovery helped the rupee gain momentum against the dollar this year.