Crude Oil Price Surge Leads to Fresh Closing Low for Rupee at Rs 83.28

In response to the escalating crude oil prices, the Indian rupee reached a new closing low of 83.28 against the US dollar on Monday, as reported by market dealers. The last record low for the rupee stood at 83.27, which was observed on September 18. Prior to this, on the preceding Friday, the Indian currency settled at 83.26 per US dollar.

Market experts have speculated that the Reserve Bank of India (RBI) took action in the foreign exchange market to shield the rupee from further depreciation. Dealers noted that state-owned banks were actively selling dollars on behalf of the central bank when the rupee touched 83.28 against the US dollar.

Despite the retreat of the dollar index from a recent high of 107 to 105.30, the rupee has been consistently trading in the range of 83.10 to 83.30 in recent days. This is attributed to the surge in crude oil prices, driven by the outbreak of armed conflict between Israel and the Hamas group, which has raised concerns of escalation. The heightened crude oil prices are leading to increased dollar demand from oil marketing companies (OMCs), and the central bank is managing volatility through dollar sales, explained VRC Reddy, head of treasury at Karur Vysya Bank.

For the month of October, the Indian rupee has depreciated by 0.3 percent. In the July-September quarter, it experienced a 1.2 percent depreciation, while it saw a 0.2 percent appreciation in the first quarter. Over the first six months of the current calendar year, the rupee appreciated by 0.16 percent due to strong foreign inflows.

On Monday, Brent crude oil prices surged above $90 per barrel, following a 6 percent increase on the previous Friday amid growing geopolitical tensions in West Asia. Analysts suggest that if crude oil prices approach $100 per barrel, the rupee may breach the 83.30 mark against the US dollar, with expectations that the next target could be 83.60.

Anindya Banerjee, vice-president of Currency Derivatives and Interest Rate Derivatives at Kotak Securities, speculated that the RBI may have sold $500 million on the day to safeguard the 83.30 per dollar level. The rise in US inflation, exceeding expectations, has led investors to consider a potential interest rate hike. Nevertheless, there is uncertainty about future rate increases due to differing stances among Federal Reserve officials, leaving many awaiting Federal Reserve Chair Jerome Powell’s forthcoming speech for clarity. The US Consumer Price Index (CPI) for September showed an annual rate of 3.7 percent and a monthly rate of 0.4 percent.