Rupee hits all-time low of 92.45/USD as crude prices surge
What's the story
The Indian rupee has hit a new low, trading at ₹92.45 against the US dollar on Friday. The fall comes as investor sentiment remains weak with Brent crude oil prices hovering above $100 per barrel. The Reserve Bank of India (RBI) has been actively intervening in the market to stabilize the currency amid high crude prices, traders said.
Market response
Traders expect rupee to depreciate further
Traders have indicated that the RBI may allow further depreciation of the rupee if crude prices remain high. Since the start of the US-Israel-Iran conflict on February 28, the rupee has depreciated over 1%. Amit Pabari, MD at CR Forex Advisors, said the USD/INR pair could gradually move toward the ₹92.5-92.8 range in the coming sessions, especially if oil prices remain elevated and geopolitical tensions persist.
Economic impact
Strait of Hormuz remains closed, increasing India's energy import costs
The ongoing conflict has led to volatile swings in the rupee's value. The Strait of Hormuz, a key trade route for oil and natural gas, remains closed. India relies on imports for over 80% of its energy needs. Higher oil prices increase import costs, leading to more dollars being paid per barrel and further weakening the rupee. This poses a potential deficit risk for India if crude prices don't start to cool down soon.
Deficit concerns
Rising crude prices could widen India's current account deficit
In Q3, India's current account deficit (CAD) widened to $13.2 billion or 1.3% of GDP, up from $11.2 billion or about 1% of GDP a year ago. Radhika Rao, Executive Director and Senior Economist at DBS Bank, said "Crude oil prices at $80- $85 per barrel will be manageable." She warned that if prices stay above $100 per barrel in the coming months, it could widen CAD by 0.35% of GDP.