Indian rupee: rupee faces new hurdles as oil continues to head north

NEW DELHI: The rupee ended on a weak basis on Monday as a further surge in global crude oil prices to multi-year highs fueled concerns over rising domestic inflation amid growing discussions on a tightening monetary policy around the world, traders said.

The national currency started the day at the same level as the previous close, opening at 75.2550 to the US dollar. However, at the end of the day, the rupee weakened, settling at 75.3400, as tightening oil prices dampened investor moods as India is a huge importer. of the raw material.

The local currency had weakened to an intra-day low of 75.3775 / $ 1 on Monday.

Crude oil futures for November delivery on the New York Mercantile Exchange added $ 0.97 to close at $ 82.88 a barrel on Friday, the highest settlement in seven years.

Brent crude futures (the international benchmark) for December delivery on the ICE Futures Exchange jumped 1% to close at $ 84.86 a barrel on Friday, marking their highest level since October 2018.

Hawkish signals from central banks around the world also added to the rupee’s woes on Wednesday, the latest trigger being the recent statement by Bank of England Governor Andrew Bailey that the British monetary authority was ready to increase. interest rates in order to control inflation.

A global shortage of coal and natural gas has contributed to the surge in crude oil prices, raising concerns about higher inflation around the world.

Several central banks in developing economies such as Brazil and Russia have already raised interest rates while others, such as South Korea, have given similar indications.

The central bank of the world’s largest economy has also given concrete signals to tighten monetary policy, with the review of the US Federal Reserve’s latest policy statement showing that the Fed may begin the process of reducing monthly purchases of ‘bonds by mid-November.

In such a situation, the RBI may find it difficult to lag far behind when it comes to normalizing the ultra-accommodating monetary policies adopted since March 2020 in order to combat the economic damage caused by the Covid-19 crisis.

Although Indian inflation based on the Consumer Price Index has fallen sharply in recent months, core inflation (which excludes the volatile components of food and fuel) remains stable and elevated.

With the surge in oil prices in early October, the RBI therefore has little choice but to remain extremely vigilant in the face of inflation.

Pessimism surrounding rising interest rates, both globally and locally, has been a key factor leading the rupee to depreciate more than 1.5% so far this month.

“Today morning there was some support because the dollar index had weakened a bit, but oil is just too big a factor to ignore,” said a currency trader from a large private bank.

“The rupee may not suddenly surpass $ 75/1, because RBI has a very large arsenal of foreign exchange reserves, but it seems inevitable that by the end of November we can be in the zone. $ 76/1; the global discourse is all about rate hikes, rate hikes and rate hikes, ”he said.

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