The rupiah hit a lifetime low, following rising oil prices and weak domestic equities
The energy-sensitive rupee hit a lifetime low in early trading on Monday as a surge in global crude oil prices to above $130 threatened to spur imported inflation and widen the country’s trade deficit and current account deficit.
The Indian rupee fell almost 1% to 76.92 per dollar after touching 76.96, its weakest level ever. On Friday, the rupee closed at 76.17 against the US dollar, the lowest close since December 15, 2021.
The rupiah slipped against the US dollar as heightened geopolitical risks due to the Russian-Ukrainian conflict pushed investors to look to the dollar as a safe haven.
The yen and dollar traded stronger as investors turned to safe-haven assets. The dollar index, which measures the strength of the dollar against a basket of six currencies, rose 0.29% to 98.93 in early trading on Monday.
Forex traders said escalating tensions between Russia and Ukraine have boosted crude oil prices and fueled concerns about domestic inflation and a wider trade deficit.
Oil prices soared above $130, the highest since 2008 on Monday, after the US and Europe risked a ban on Russian oil imports and delays in talks with Iran heightened fears of a lack of supply.
What didn’t help was the steady outflow of foreign funds from Indian capital markets. This was reflected in weaker domestic exchanges, with Sensex falling over 1400 pips and Nifty below 15,850.
Foreign institutional investors remained net sellers in the capital market on Friday, selling shares worth Rs 7,631.02 crore, according to the stock exchange.
In addition, investor sentiment was affected by a steady outflow of foreign funds and a sluggish performance of domestic stocks.
“India’s traditionally non-interventionist central bank may allow further depreciation of the worst-performing Asian currency since the conflict in Ukraine, in the hope that a weaker rupee will boost export competitiveness and help close gaps supposedly widening due to rising oil prices,” the message says. Kshitii Purohit, Head of International and Commodities at CapitalVia Global Research.
“The unprecedented turmoil over the past few decades has shown that the odds against the local currency are stacking. The local currency also suffered due to the constant outflow of foreign funds and the negative trend in domestic markets,” he added.