A seemingly unhindered northward run for oil prices has coincided with a cycle of hardening interest rates in the US, the global economic powerhouse where growth has made dollar-denominated securities more attractive than emerging-market investments. The flight of capital from emerging markets has caused their currencies to depreciate, and with a 13 per cent decline this year, the rupee has performed the worst in Asia.
“Global macros, including oil, have continued to put pressure on the rupee,” said Ashish Vaidya, head of trading at DBS Bank in Mumbai. “The markets were seen to push the rupee to the brink today, with major news flows coming from the ministry and the regulatory sources earlier in the day.”
The rupee fell as crude oil price surged as high as $85 per barrel, the highest level since November, 2014. The rupee hit a record low at 73.42 a dollar. The local unit ended 0.70 per cent down at 73.34, the life-time closing low for the currency.
In Mumbai, speculation was rife that the authorities could open up a special dollar window for oil marketing companies. India meets over three-fourths of its oil requirements through overseas shipments.
Also, some market participants believed that the RBI was comfortable with the rupee’s current levels as it was not seen intensely intervening in the market.
“In addition to global macros, the direction of the rupee will be a subset of the RBI policy action and associated statements,” Vaidya said.
Later in the evening, RBI eased external commercial borrowing norms for oil marketing companies by cutting the minimum average period of 3/5 years from five years earlier. The central bank has waived off the individual limit of $750 million. The RBI has permitted oil marketing companies to borrow as much as $10 billion through External Commercial Borrowings.
Overseas derivatives, or nondeliverable forwards, pointed to the record low rupee level on Tuesday, when New Delhi observed a trading holiday. The notional NDF spot rate hit 73.40.
“The overseas currency market has weighed on the rupee, which is extending its losses with record low levels,” said Anindya Banerjee, currency analyst at Kotak Securities. “Although the RBI was believed to have intervened, the dollar demand is coming from speculators, who are now frequently changing positions. Globally, people are going long on the dollar.”
The arbitrage or differential between onshore and offshore forwards markets has added to the pressure. The gap has on Wednesday widened to 14-25 paise in the one – and two-month maturity categories compared with eight to 20 paise last week.
“As long as oil is rising, it will continue to cloud the prospects of importing emerging market currencies, including the rupee,”said a treasury head of a large foreign bank.
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1 Comment on this Story
Madhusudan Bangalore752 days ago
In last 70 years no planning and projects are implemented to meet crisis of galloping prices of petroleum products. Congress party is bunch of dishonest leaders who recklessly looted this country and delayed all projects. The people had great hope with Modi govt but this govt miserably failed to meet aspirations of people. This govt fails to stop Corruption which is most critical problem and main roadblock in progress of this country. The people are crying and worst victim of spiralling petroleum prices. This country will remain face serious problem till prices are brought down to level of Rs50/- per litre for both items by lowering taxes. The money can be saved by curbing corruption and freezing all wages and salaries of all. But govt had no guts to do so who is busy in false propaganda.