MUMBAI: Firming global crude prices had a run on rupee on Wednesday, which crashed to 73 against the US dollar for the first time.
At $85 per barrel, crude prices are nearing a four-year high, and predictably, rupee opened lower at 73.25, touched an all-time low of 73.42 and ended at 73.34.
The problem of twin-Cs – crude and currency – is now staring at India, which is already on a tightrope walk, thanks to its wobbly fiscal deficit situation. Adding trouble, foreign investors are dumping emerging market stocks and bonds to bask in the luxuriant glow of Dow Jones, drawn by the rising US interest rates. Rupee depreciated nearly 7 per cent since RBI’s last policy, while crude prices jumped 17 per cent, giving enough ammunition for the central bank to hike policy rates Friday.
“It seems like the stage is set for yet another rate hike. Will this hat-trick be accompanied by a change in stance is the key thing to watch out. Markets seem to already have discounted a rate hike at the current prices and the tone of the policy could be a key determinant for yield movements,” said Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company.
As sentiment soured, bond prices erased all of Monday’s gains, with the 10-year prices touching 8.05 per cent, up from its previous close of 7.98 per cent. Experts are raising concerns on other macro elements like the deteriorating external sector balance, upside risks to inflation, risks of fiscal slippage, and further rupee depreciation.
“RBI’s guidance will be crucial. Markets will keenly watch if RBI announces crucial measures to stabilise the rupee. In the near-term, rupee might trade in 72.50 and 73.80 range,” said Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers.
Meanwhile, other Asian currencies trading remained mixed with a few like Indonesian rupiah, Japanese Yen and Taiwan dollar were down, while others including Chinese yuan, Philippines peso and South Korean won were up. The dollar index, which measures the US currency’s strength against major currencies, traded lower at 95.3, down 0.20 per cent from its previous close of 95.507.