Jayanta Roy Chowdhury
New Delhi, Mar 18 (UNI) The Indian rupee hit a record low of Rs 92.65 to the dollar at close of trading on Wednesday, as foreign investors kept pulling out of bourses and spiralling crude prices kept pushing up India’s foreign exchange outflow.
Analysts believe that if the Iran-US war in West Asia continues, the run away from emerging market bourses to the safe haven of the US dollar will continue, and the rupee could well touch Rs 95 to the dollar by the end of the month.
“The rupee breached the psychological barrier of Rs 92.50 today. Two reasons kept pulling the rupee down — FII pull out from our markets and the crude price rise,” Vikram Sahney, an independent merchant banker told UNI.
Foreign Institutional Investors have been selling off their stocks here through March. “It’s now crossed a staggering Rs 57,000 crore in outflow within this month. The peak was on March 13, when we saw FIIs pulling out a massive Rs 10,716 crore in one single day,” he said.
The International Energy Agency bid to stabilise crude prices by releasing more crude into the market, some 400 billion barrels, from its reserves, has also been a dismal failure. Since the war began, crude prices have risen by nearly 40 per cent.
“IEA’s actions and the actions of various central banks to prop up their currencies has been something like King Canute trying to stop the sea from coming in,” chuckled Sahney, adding that the only gainer has been the dollar and bullion which has strengthened as investors fled to the safe havens of the US dollar, treasury bonds and gold.
Concerns about the disruptions of crude movement through the crucial Strait of Hormuz continued as Israel hit targets within Iran to slay prominent war cabinet leaders there, while US allies shunned a plan to jointly patrol the Strait with Washington to ensure safe passge for tankers and cargo vessels.
As India relies heavily on imported oil, this surge has increased import costs, worsened the current account deficit, and heightened demand for dollars, further weakening the rupee.
Adding to the rupee’s woes, India’s trade deficit for February widened significantly to USD 27.1 billion in February from USD 14.4 billion a year ago. A higher trade deficit generally means higher imports requiring selling domestic currency to buy foreign currency. This in turn decreases demand for the local currency, pushing its value downwards.
In India’s case there was a steep decline in exports of petroleum products by 40 per cent even as India’s import bill went up to keep pace with the rise in the price of crude.
Sources said the RBI has through Indian banks intervened in the money market via dollar sales but couldn’t fully stem the fall. The Indian currency has declined more than 1.5 per cent since the Iran-US war began on February 28.
“We expect USD/INR potentially range-bound at 92-95 in the coming monthsif oil prices stay elevated due to conflict risks. At a pessimistic level we can even see it touch Rs 97.50 if oil hits USD 130/barrel or worsens,” the head of the forex floor of a nationalised bank, who did not wish to be named, said.
