Indian rupee hit hard by oil price rise, trade war

Muscat: The Indian rupee has fallen to its lowest point in more than a year, according to exchange houses in Muscat.
On Wednesday one Omani rial was being traded for Rs177.95 as the currency fell to 68.68 to a dollar, a 0.62 per cent decline from its previous close of 68.25. This is the lowest level for Indian rupee (INR) since November 29, 2016.
Speaking to the Times of Oman, R. Madusdunan, GM of Global Money Exchange, said, “It is linked to the hike in crude oil prices. Secondly, the dollar has become strong against other currencies due to the fact that the United States may hike import duties to EU countries, as well as China.”
Impact
“For the Indian economy, the effect is greater than expected. But the higher price of crude will put pressure on inflation, in addition to widening the trade deficit, which overall, is not good for any economy. As the expat population in Oman has declined, the inflow of remittances will also be affected. The outlook on the rupee is negative and this may continue for sometime,” he added.
High oil prices will stoke inflation and widen the country’s current account deficit, adding to more selling pressure on the fragile rupee that risks destabilising the broader economy. India imports more than two-thirds of its crude requirements.
Brent crude was up 30 cents a barrel at US$76.61 by 0800 GMT. U.S. light crude was 25 cents higher at $70.78.
“If the rupee continues to depreciate, it could trigger dollar outflows from the equity market, which can put pressure on the currency, current account deficit and even push the balance of payments to a deficit,” said Sajal Gupta, Head of Forex and Rates at Edelweiss Securities.
Traders said INR69 per dollar was a critical level and beyond that, the rupee could depreciate faster unless the Reserve Bank of India (RBI) intervened aggressively. The RBI was suspected to have sold dollars mildly in the forex market earlier in the day, traders said.
The rupee has fallen by nearly 7 per cent so far this year—the worst performer among regional currencies—as dependence on oil imports has exposed the economy to risks of higher crude prices.
Massive sell-off
This has prompted a massive sell-off by foreign bond investors. But even the equity market, which had been holding up until now, is seeing net flows turning negative. So far in 2018, net outflows from bonds and shares stood at $6.6 billion. — With Inputs From Reuters