Indian Rupee Hits Record Low Amid Sustained Inflation Concerns – World

The Indian rupee hit record lows against the US currency on Tuesday after higher oil prices sparked concerns about sustained inflation, though intermittent central bank selling of dollars helped limit losses.

The rupee fell as much as 0.6 percent to 78.775 against the dollar, surpassing a previous record low of 78.39 hit last week. Its key stock index, the Nifty 50, also fell 0.4%.

India imports more than two-thirds of its oil needs, and higher crude prices are adding to the country’s trade and current account deficit (CAD) and hurting the rupee by raising imported inflation.

“With crude rising once again, we could see the rupee heading towards 79-79.50 levels in the next week, depending on what the central bank does,” said a senior trader at a private bank.

Oil prices rose for the third day in a row as major producers Saudi Arabia and the United Arab Emirates looked unlikely to increase output significantly, while political unrest in Libya and Ecuador added to concerns over the supply.

Traders said the Reserve Bank of India had been intermittently selling dollars through state-owned banks to avoid runaway losses in the rupee, but demand for dollars in the system was much stronger.

Global dollar funding stress is evident through the widening of the LIBOR-OIS spread, and in the domestic market, the RBI’s heavy futures market intervention has exacerbated the problem of dollar cash shortages, analysts said. .

The RBI has been selling dollar forwards to avoid infusing rupee liquidity into the system and that has led to one-year ground dollar forward premiums collapsing below 3%.

“The dislocation in forward rates, falling currency hedging, persistently high commodity prices, limited exchange rate pass-through to inflation and elevated INR valuations may require the RBI to refocus its strategy.” currency intervention,” said Madhavi Arora, an economist at Emkay. Global.

“Allowing INR to weaken gently over time is the right strategy, giving CAD room to improve,” he added.

Jigar Trivedi, a research analyst at Anand Rathi Shares and Stock Brokers, said he expects the rupee to depreciate towards levels of 80-81 per dollar by the end of the year, weighed down by twin deficits and widening interest rate spreads. .

The Indian currency and stocks were pressured by concerns that a rise in crude prices would exacerbate already high inflation. The country is a major importer of the product.

“The divergence in policy stances from the Fed and (Bank Indonesia), as well as the recent drop in (crude palm oil) prices weighing on trade balances, could support USD-IDR (in the) short term,” Maybank analysts said.

Palm oil prices in Indonesia, the world’s top exporter of vegetable oil, have been inching down on expectations of higher production and fears of a recession. Meanwhile, other Asian currencies posted modest gains due to a weaker dollar.

The US currency is set for a third straight day of losses. Upbeat economic signals from the United States also fueled some buying.

“The market was nervous at the beginning of last week, but the risk markets started to stabilize. That led to a pullback in the dollar,” said Bank of Singapore currency strategist Moh Siong Sim.

The Thai baht rose as much as 0.7 percent to hit a nearly two-week high, while the Malaysian ringgit rose 0.2 percent.

The gains in the baht were boosted by Thailand’s finance minister who said the economy will grow around 3.5% this year, helped by foreign tourist arrivals.

Thai shares rose 0.5pc. China’s yuan also rebounded from earlier losses and closed around 0.1% higher, after the country eased quarantine time for international visitors.

In the Philippines, the Treasury Office rejected all offers it received for an offering of Treasury bonds due in 2029, due to the higher rates offered.

Meanwhile, local media reported that the Supreme Court has rejected a petition to disqualify President-elect Ferdinand Marcos, who will be officially sworn in on Thursday.

The peso fluctuated around 54.86 to 54.60 per dollar, but settled around 54.70, a 0.1% gain on the day.

Maybank FX strategist Yanxi Tan attributed the move to technical indicators suggesting the peso may be oversold rather than the Supreme Court ruling.

Stocks across Asia were mixed, with markets in the Philippines and South Korea rising 1.7% and 0.8%, respectively, while those in Singapore lost 0.1%.

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