The rupee fell against the dollar on Wednesday morning trade, breaching the 73 mark for the first time after crude oil surged to nearly $85 per barrel, a near four-year high. The rupee slipped to an unprecedented 73.41 from its Monday’s close of 72.91.
So far this year the rupee has declined almost 13% and foreign investors have sold $2.01 billion and $7.11 billion in the equity and debt markets, respectively. The last time the rupee fell so much in percentage terms was in 2013.
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The predictions that crude – India’s biggest import – could revisit $100 per barrel signals that things may get a lot worse for the rupee in the final three months of the year.
Crude prices have been tightening amid an expected reduction in oil exports from Iran due to US sanctions, persistent decline in Venezuelan production, and a slowdown of growth in US output due to mid-stream bottlenecks.
As a result India’s current-account deficit is estimated to widen to $75 billion in the fiscal year to March, or 2.8% of gross domestic product, according to Bank of America Merrill Lynch. That would be the highest since fiscal 2013.
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