Slide Down An Oil Slick

A falling rupee and unstable oil prices may threaten recent robust growth, hitting trade in particular

- Lola Nayar

AN unsteady rupee together with continuing volatility in crude oil prices in the wake of US sanc­tions against Iran and Russia have become a major cause of worry for India. The downward slide of the rupee over the last several weeks was triggered by the US Treasury Department’s move on April 16 when it put India—for the first time—on a list of countries being monitored for possible currency manipulation. In addition, US President Donald Trump’s protection­ ist moves have not helped India. The country is yet to work out how to mini­mise the impact on consumers as crude oil prices hover over $75 per barrel and the rupee sliding to more than 67 rup­ees to the dollar. For India, which dep­ ends on imports for over 75 per cent of its crude oil demand, a weak rupee is a big drawback as it threatens to undo the last quarter’s robust economic growth. A major concern for policymakers is, will global oil prices scale over $80 per barrel in the near future, as witnessed recently before the slide to $75 levels?

With the Reserve Bank of India (RBI) stepping in, the rupee slide has been stemmed for now at below Rs 68/dollar. Despite this, the question—worrying imp­orters in particular—is whether the rupee will fall further. “We look for a range of Rs 66.50–Rs 69.50 for the next three months, with a weakening bias for rupees. Fur­ther on, the rupee’s movement will depend a lot on the crude oil price,” says Vikram Murarka, chief currency strategist, Kshitij Consultancy Services. He clarifies that contrary to popular perception, crude oil strength or weakness doesn’t translate to long­term rupee weakness or strength.