The Indian rupee has crossed the Rs 96 mark against the US dollar on Friday, May 15, marking a low for the currency, which has been in under pressure since the Iran war. It has been one of the worst-performing currencies in Asia.
Experts note that the currency's performance remains heavily dependent on crude oil prices. A sharper spike in oil prices—potentially toward $140–150 per barrel, could significantly intensify pressure on the rupee. They further seek policy intervention to stabilise the Indian currency.
According to Anindya Banerjee, Head of Research at Kotak Securities, the higher crude prices is a twin shock, one higher import bill and more FPI outflows.
"If Hormuz cotinues to stay shut over this month, from June onwards oil prices may go sustantially high at a level it may destroy demand," he said. In this context ruppe may touch 97.5 or 98.5 by end of this month or by mid of next month.
Banerjee notes that the possibility of rupee touching 100 against US dollar will totally depend on crude oil prices.
"Till it is capped at $120 per barrel the rupee things are fine. If oil flares up to T Rs140-150 then rupee will be under lot of pressure," he said.
What India needs to do now?
Experts note that policy intervention will be required for rupee to stabilise amid soaring oil prices.
"Given the pace of depreciation, we need some policy intervention, we expect RBI to be far more tolerant to a weaker rupee going forward than we have seen in similar instances before as all central banks are going towards reserve preservation mode there is a fair bit of uncertainty," according to Anubhuti Sahay, Head of India Economics and Reasearch at Standard Chartered Bank.
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The expert further noted that central bank has nine months of import cover and expects more measures to be rolled out, however previous measures such as are unlikely to be effective if crude oil prices remain elevated.
Emphasising on the way to bring a dip in rupee, Abhishek Goenka, founder of India Forex And Asset Management suggests, "unless we stop our outflows and we have something that brings inflows of US dollars, rupee may not get settled down."
Banerjee added, "We have to create policy intervention, the effect intervention will continue. But until and unless some policy intervention comes, we may not see a dip in USD INR price and we are completely dependent on Hormuz."
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