A customer hands over Indian currency notes to an employee at a gas station in Mumbai, India, August 13, 2018. REUTERS/Francis Mascarenhas/File photo Obtaining licensing rights
MUMBAI (Reuters) – The rupee rose against the U.S. dollar on Monday, but rising oil prices and a rising dollar index signal a growing risk of a major decline in the local currency, analysts said.
In the latest trading, the rupee recorded 83.1450 to the US dollar, compared to 83.1850 in the previous session. The Reserve Bank of India regularly intervenes to ensure that the rupee does not fall below the record low of 83.29.
“The Reserve Bank of India will be there to defend the rupee and ensure that overall volatility is contained,” said the head of foreign exchange sales at a private bank.
“But you can’t help but think that the probability of hitting a new low has risen,” the executive said, pointing to oil prices and the rising dollar.
Brent crude rose 8.5% this month and rose about 26% in the current quarter due to concerns about supplies.
The International Energy Agency said last week that the oil production cuts extended by Saudi Arabia and Russia will mean a large deficit in the market during the last quarter of this year.
Brent crude oil recorded $94.60, hovering at its highest levels since November 2022.
“Depreciation pressures for the Indian rupee are expected to be higher in the near term with crude oil prices rising above $90 and the dollar strengthening,” Gaura Sen Gupta, economist at IDFC First Bank, wrote in a note.
The dollar index, supported by expectations that the US Federal Reserve will keep interest rates high for a longer period, is hovering at its highest levels since March.
Higher oil prices could worsen India’s oil trade deficit and impact the overall deficit. India’s trade deficit widened in August to its highest level in ten months, reaching $24.2 billion.
“This is a negative terms-of-trade shock for Asia, given that most Asian economies are net oil importers,” Nomura Bank said in a note on Friday.
“India, Thailand and the Philippines appear most vulnerable to higher oil prices.”
Nimesh reports immediately. Edited by Dania Ann Topel
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