Rupee trades at record low of 76.96 a dollar on soaring crude prices

According to a Kotak Institutional Equities report, an average crude price of $120a barrel will cost the Indian economy an incremental $70 billion, translating to 1.9 percent of the GDP, in FY2023 versus FY2022

The rupee hit an all-time low of nearly 77 a dollar on Monday after crude oil made fresh surges on news reports that the US and its European allies were weighing a ban on Russian oil. This was the fourth consecutive session when the currency weakened.

The home currency was trading at 76.96 a dollar, down 1.05 percent from its previous close, at the time of filing this story. It had opened at 76.96 a dollar.

Analysts said that the Russian invasion of Ukraine and likely lower exports of Russian crude oil will keep the oil prices elevated for a protracted period. “We note increasing risks of global crude prices staying elevated in the next 6-9 months due to large imbalances in the global crude oil markets,” an analyst said.

Brent soared to a near 14-year high of $140. Oil reached its highest since 2008 in US trading, and there is no sign of a cooling-off.

The latest setback came after US Secretary of State Antony Blinken told news channels, “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil, while making sure that there is still an appropriate supply of oil on world markets.”

According to Kotak Institutional Equities report, an average crude price of $120a barrel will cost the Indian economy an incremental $70 billion, translating to 1.9 percent of the GDP, in FY2023 versus FY2022. Steep crude prices will pose stiff challenges in the form of higher CAD/GDP, higher inflation and lower growth.

The additional cost will be borne by the government in the form of lower excise revenues and higher MSPs, households in the form of higher retail prices of petroleum products and companies; however, companies will pass on higher fuel costs to households eventually.

The delays in the potential return of Iranian crude to global markets, fresh supply disruptions in Libya and continued selling by foreign investors in Indian equities also dampened the sentiments among traders and also kept the domestic currency under pressure. Since October, Foreign investors have sold around Rs2 trillion.

On the domestic front, participants will be closely eyeing the state election results in five states of Uttar Pradesh, Uttarakhand, Goa, Punjab and Manipur on March 10. On the macroeconomic front, the IIP data is scheduled for March 11.

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