- The Indian rupee has hit the lowest level on record against the greenback.
- The latest selloff coincided with a spike in crude oil prices. India is a major oil importer, and the third-largest source of demand behind the United States and China.
- Emerging markets, including India, have been under pressure in recent months due to higher crude prices, higher global interest rates and renewed geopolitical tensions.
India is a large and rapidly growing economy, and also a major oil importer.
And with crude prices screeching higher this week, it’s taken its toll on the Indian rupee.
It’s just fallen to the lowest level on record against the greenback.
After closing at the highest level since November 2016 on Tuesday, the USD/INR has stormed above 69.00 upon the resumption of trade today, hitting a high of 69.09 just a few moments ago.
To fuel its rapidly-growing economy, currently 7.7% in the year to March, India has become a major oil importer in recent years, sitting only behind the United States and China as the largest source of global demand.
Oil imports in 2017 surged to a record 4.37 million barrels last year, according to Reuters.
With crude oil prices screaming higher this week on the back of a big draw in US inventories, supply disruptions in Canada and calls from the US for its allies to stop importing Iranian crude as a part of new sanctions slapped on the country, it’s clearly taken its toll on the rupee.
The latest bout of weakness has been put down to Indian oil importer buying US dollars to pay for crude cargoes.
Along with soaring crude prices, trade tensions between the United States and China, as well as increased volatility in emerging markets as the US Federal Reserve hikes policy rates and runs down its balance sheet, have also been factors behind the rupees slide this year.
The USD/INR is currently up 9.25% from January 8.
Earlier this month, Urjit Patel, Governor of the Reserve Bank of India, wrote an op-ed in the Financial Times warning that should the US maintains its current pace of monetary withdrawal it could have serious repercussions for the global economy.
Patel’s chief area of concern was the unwinding of the Fed’s balance sheet following years or quantitative easing, especially during a period when corporate and personal tax cuts are just starting to filter through the US economy.
Patel said the subsequent decline in USD liquidity meant a “crisis” in global bond markets denominated in US dollars will become “inevitable”.
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