The Indian Rupee Falls To A Lifetime Low, While Yields Soar

On Monday, the Indian rupee hit a new low, while bond rates soared, as a strong spike in global crude oil prices sparked anxiety about local inflation, bolstering the central bank’s prospects for interest rate hikes.

India imports more than two-thirds of its oil, and rising costs are expected to deepen the country’s trade and current account deficits, as well as increase imported inflation. By 0545 GMT, the partly convertible rupee was trading at 76.86/87 versus the dollar, after touching 76.96, its lowest level ever. It closed at 76.16 on Friday. Amid the COVID-19 epidemic, the rupee hit a new low of 76.9050 on April 22, 2020. “State-run banks started selling dollars shortly after the rupee hit all-time lows,” claimed a senior trader at a private bank. “However, unless there is strong intervention, we might see the rupee depreciate again, depending on how stocks perform.”

Indian Reserve Bank Approaches the Issue

To prevent rapid fluctuations in the rupee, the Reserve Bank of India sells dollars through state-owned banks. With FX reserves at $631.53 billion as of early March, traders believe the central bank has the firepower to prevent the currency from falling much more.

The main fear is whether, in the context of the Ukraine crisis, the RBI would be obliged to intervene to curb inflation by hiking interest rates. So far, the RBI has reaffirmed its commitment to boosting economic growth while maintaining the accommodating monetary policy. Oil prices rose by more than 9%, reaching new highs not seen since 2008. As global oil prices rise and the domestic economy reopens from a third wave of the epidemic, economists and experts predicted that India’s trade and current account imbalances will worsen, putting pressure on the rupee. The benchmark 10-year bond yield was 6.88 percent, up 7 basis points from the previous day.

Traders will keep an eye on domestic stocks and global crude prices for more guidance during the session. Indian stocks fell more than 2% as investors fled riskier assets as oil prices climbed on reports that the US and its European allies were considering a Russian oil import embargo.

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