New Delhi: The Indian rupee has come under intense selling pressure due to a perfect storm of global headwinds which analysts say will continue to pummel the currency in the months ahead, CNBC reported.
In recent weeks, the Indian currency tested record lows and breached the 80 rupees per US dollar level at least twice in July, recovering only after the Reserve Bank of India (RBI) stepped in to stem the slide.
The currency has since regained some ground and was around 79.06 to the dollar on Thursday.
The recent sharp declines prompted a swift response from policymakers to assuage concerns about a rupee sell-off, which could drive prices even lower.
India’s Finance Minister Nirmala Sitharaman attributed the rupee’s depreciation to external reasons, in a written statement to parliament in late July.
Global factors such as the ongoing Russia-Ukraine war, soaring crude oil prices and tightening of global financial conditions are among the key reasons for the weakening of the Indian rupee against the dollar, she said.
Citing analysts the report said that the currency is being buffeted from multiple fronts globally.
India’s exposure to high energy prices has had knock-on effects on the currency, with the rupee falling more than 5% against the dollar year-to-date.
Soaring energy prices are especially challenging for India — the world’s third-largest oil importer — which typically buys oil in dollars. When the rupee weakens, its oil purchases become more expensive.
According to Nomura analysts, for every $1 increase in the price of oil, India’s import bill increases by $2.1 billion.
There’s been a “significant uptick” in Russian oil deliveries bound for India since March after Russia’s invasion of Ukraine began — and New Delhi looks set to buy even more cheap oil from Moscow, industry observers say.
Early data from June showed India’s supply of Russian crude reached nearly 1 million barrels per day, up from 800,000 barrels per day in May, according to investment advisory firm Again Capital.
“Usually, weaker currency acts as a pressure valve to restore external stability by making exports more competitive and reducing demand for imports by making them more expensive,” said Adarsh Sinha, co-head for Asia-Pacific forex and rates strategy at the Bank of America Securities.
“Oil imports from Russia, if settled in rupee, would reduce dollar demand from oil importers. These rupees could be used to settle payment for Indian exports, and/ or invested into India – both could be beneficial,” he told CNBC.
Free Press Kashmir is now on Telegram. Click here to Join.
FPK Android App for 2G. Click here to Download.
