Rupee Plummets as Soaring Crude Oil Prices and Dollar Demand Create Headwinds
Mumbai, India – The Indian rupee continued its downward trajectory against the US dollar on Tuesday, weakening by 7 paise to trade at 95.68 in early morning interbank foreign exchange market sessions. This decline marks a consecutive fall for the Indian currency, which had already shed 19 paise in the previous trading session, closing at 95.61 against the dollar on Monday.
The primary drivers behind this persistent depreciation are the escalating global crude oil prices, which have surged past the critical $90 per barrel mark, and the sustained demand for the US dollar. Brent crude, the international benchmark, was trading above $91 per barrel, with futures witnessing a 0.52% increase to $91.34 a barrel. Forex traders have highlighted that these elevated crude prices are directly contributing to an increased demand for dollars, particularly for oil-related payments, thereby putting significant pressure on the rupee.
Compounding the challenges for the Indian currency are broader concerns regarding dollar inflows. Market participants are closely watching the aftermath of the Reserve Bank of India’s (RBI) decision to close the concessional Foreign Currency Non-Resident (Bank) [FCN(B)] forex-swap facility earlier than anticipated. This move has introduced uncertainty regarding future dollar liquidity in the market.
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, commented on the situation, stating, "The rupee opened lower as oil prices rose with the US and Iran remaining at odds over the Strait of Hormuz and there was no progress on a peace deal." He further elaborated on the vulnerability of the rupee, noting, "Rupee looks vulnerable to the rising oil prices which have remained close to $90 and have now risen above $91 per barrel. RBI was protecting near 95.61 on Monday and may be protecting 95.75 today but will allow the depreciation to continue in view of the rising oil prices and consistent demand from oil companies."
Despite the rupee’s woes, the US dollar has maintained a relatively stable position against other major global currencies. The dollar index, which measures the greenback’s strength against a basket of six key currencies, registered at 99.63, a marginal dip of 0.01%.
The weakening rupee coincides with a subdued start for India’s domestic equity markets. In early trade, the benchmark Sensex was down by 278.32 points, trading at 77,450.64, while the Nifty 50 index declined by 57.65 points to 24,230.45. Adding to the bearish sentiment, foreign institutional investors (FIIs) remained net sellers in the equity market on Monday, offloading shares worth a significant Rs 2,535.10 crore, according to exchange data. This continued outflow of foreign capital further underscores the prevailing cautious mood among investors amidst global economic uncertainties and domestic currency pressures.
