Indian rupee hits a record low against the US dollar
The Indian rupee sank to its lowest ever against the US dollar today (March 7) as the war between Russia and Ukraine drove up crude prices to multi-year highs globally.
The rupee fell by up to 1% to 76.9625 per dollar, against its previous low of 76.9088 to a dollar hit in 2020. The surge in crude oil prices is now likely to increase the country’s oil import bill, more so because India imports nearly 80% of its fuel needs.
“The rupee is one of the worst-performing currencies in EMs [emerging markets]. The commentary does not seem to be de-escalating anytime soon, so it is an ongoing pressure,” said Sakshi Gupta, senior economist at HDFC Bank.
She believes the rupee may fall to as low as Rs77.50 a dollar if there is a ban on energy exports from Russia.
Asia’s worst-performing currency
Since India is one of the largest importers of crude oil, it is more vulnerable.
“The INR is more sensitive to supply-side oil shocks,” Barclays said in a note. “Geopolitical risks will likely stay elevated, especially on the terms of trade shock and [India’s] current-account deficit implications.”
An exodus of foreign money
Owing to global risk aversion and increasing inflationary pressures, foreign investors have pulled out a significant amount of their funds from Indian assets. In 2022, overseas investors withdrew total funds worth $4.14 billion, out of which $2.3 billion has flown this month itself.
Today, the benchmark stock indices–Nifty50 and Sensex–fell to the lowest since July 2021.
Analysts estimated the initial share sale of India’s largest state-run insurer Life Insurance Corporation of India, widely referred to as India’s Aramco moment, would have fetched $5 billion-$6 billion of foreign inflows, thereby supporting the rupee.
However, its delay to the next fiscal year has paved the way for further fall in the Indian equities.