Mumbai: The rupee weakened past the 73 to a dollar mark for the first time to hit an all-time low on Wednesday after crude oil surged to nearly $85 per barrel, a near four-year high. At 9.15am, the rupee was trading at 73.28 a dollar, down 0.45% from its Monday’s close of 72.91. The home currency opened at 73.25 per dollar and touched a fresh low of 73.34. On Tuesday, markets were closed on account of Gandhi Jayanti.
Traders were concerned that a rise in US interest rates and expensive oil could lead to fiscal slippage, increase inflationary pressures and raise the chances of the Reserve Bank of India (RBI) increasing interest rates in its monetary policy review later this week.
Analyst see a near-term upside to crude prices, given a tightening of the global oil market amid an expected reduction in oil exports from Iran due to US sanctions, persistent decline in Venezuelan production, and a slowdown of growth in US output due to mid-stream bottlenecks.
“With crude prices likely to remain (high), we reiterate our concerns on the Indian macro, especially, on the deteriorating external sector balance, upside risks to inflation, risks of fiscal slippage, and rupee depreciation,” Kotak Economic Research said in a report on 27 September.
Bond prices wiped out all of Monday’s gains as sentiment was was muted ahead of a widely expected rate hike during the forthcoming RBI Monetary Policy Committee meeting. External headwinds in the form of surging crude prices and a depreciating rupee continued to be key concerns for the bond markets, Edelweiss Securities said in a note.
The 10-year gilt yield stood at 8.052%, above its previous close of 7.988%. Bond yields and prices move in opposite directions.
Of 15 economists surveyed by Mint, 14 expect the RBI to raise the repo rate, the rate at which it lends to commercial banks, to 6.75%. One economist expected a 50 basis point hike to 7%. The benchmark Sensex rose 0.36% to 36,656.91 points on Wednesday. Year to date, it has gained 7.25%.
So far this year the rupee has declined 12.07% and foreign investors have sold $2.01 billion and $7.11 billion in the equity and debt markets, respectively. Asian currencies were trading mixed. The Indonesian rupiah was down 0.27%, Japanese yen 0.13% and Taiwan dollar 0.07%. However, the Chinese yuan was up 0.31%, Philippines peso 0.17% and South Korean won 0.07%.
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