The energy-sensitive rupee hit a lifetime low in early trade on Monday as the sharp rise in global crude oil prices to over $130 threatens to drive up imported inflation and widen the country’s trade and current account deficit.
The rupee was trading almost 1 percent weaker at 76.92 per dollar after touching 76.96, its weakest level ever. The currency fell on Friday to close at 76.17 against the US dollar, its lowest closing level since December 15, 2021.
The rupee fell against the US dollar as heightened geopolitical risks due to the conflict between Russia and Ukraine pushed investors to the safe-haven appeal of the dollar.
The yen and the dollar were trading stronger as investors moved towards safer assets. The dollar index, which measures the strength of the US currency against a basket of six currencies, rose 0.29 percent to 98.93 in early trading on Monday.
Forex traders said escalating tensions between Russia and Ukraine kept crude oil prices high and heightened concerns about domestic inflation and the broader trade deficit.
Oil prices jumped above $130, their highest level since 2008, on Monday, after a US and European ban on Russian oil imports led to risks and delays in Iran talks, raising supply concerns.
What hasn’t helped are the constant inflows of foreign money from the Indian capital markets. This was reflected in the weakness of the local stock exchanges, with the Sensex index down more than 1,400 points and the Nifty less than 15,850 points.
According to stock exchange data, foreign institutional investors remained net sellers in the capital market on Friday offloading shares worth Rs 7,631.02 crore.
Besides, continued foreign money outflows and a lackluster trend in domestic stocks weighed on investor sentiment.
“The traditionally non-interventional Indian central bank may allow further depreciation of the currency, the worst performing in Asia since the start of the Ukraine conflict, in the hope that the weak rupee will increase the competitiveness of exports and help fill the gaps that are supposed to widen due to higher oil costs,” he said. Kshitij Purohit, Head of International Commodities and Commodities at CapitalVia Global Research.
He added, “The unprecedented turmoil over the past few decades has shown that the possibilities are stacked against the local currency. The local currency has also declined due to the continued inflows of foreign money abroad and the negative trend in local markets.”
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