Rupee sheds 53 paise on crude oil price spike; bond yields jump

Dealers say it's because of delay in index inclusion

The rupee weakened sharply versus the US dollar on Monday as global crude oil prices surged on reports of a reduction in output by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, dealers said.

The rupee closed at 81.88 per US dollar versus its previous close of 81.35 per dollar. So far in 2022, the domestic currency has depreciated 9.2 per cent against the greenback. In the course of trade, the rupee touched a low of 81.93 per dollar, not far from the record intraday low of 81.95 per dollar touched last week.

Government bonds also took a beating on Monday as the hardening of oil prices stoked concerns about India’s inflation, given that the country is a major importer of the commodity. Yield on the 10-year benchmark bond closed 7 basis points higher at 7.47 per cent. Bond prices and yields move inversely.

The lack of an announcement of the inclusion of India’s bonds in global indices also dragged bonds lower, dealers said. Such a move, which many were expecting to be announced at the end of September, would have brought in inflows worth around $30 billion over a year, dealers said.

With the speculation of an output cut sending Brent crude prices 3 per cent higher on Monday, importers rushed to lock in dollar purchases, fearing an even sharper rise in oil prices. This exacerbated the rupee’s fall, dealers said.

OPEC is scheduled to hold a meeting to discuss global output on Wednesday. The most active Brent crude futures contract was last trading close to $88 per barrel.

“Global oil prices rallied on the news of OPEC+ meeting to mull production cuts. This put further pressure on USDINR as importers hedged their exposure in the market,” said Bhaskar Panda, executive vice-president of overseas treasury, HDFC Bank.

The rupee has suffered a spell of heightened volatility since the US Federal Reserve signaled a longer-than-expected monetary tightening cycle on September 21. The domestic currency has weakened 2.3 per cent against the dollar since then.

With higher US interest rates pushing global funds towards the world’s largest economy, foreign portfolio investors have turned sellers of Indian equities of late, aggravating the rupee’s fall. Over the last week, FPIs have pulled out around $2.5 billion worth of domestic stocks, dealers said. Overseas investors had finally resumed net purchases of Indian equities in late July following a hiatus of nine months.

While the Reserve Bank of India was said to have sold dollars around the 81.90 per dollar mark in order to rein in the rupee’s weakness, the central bank was not said to have been particularly aggressive in its interventions, dealers said.

“Considering FX reserves now around $537 billion and liquidity conditions, the RBI may not remain very aggressive when it comes to intervention. For USD/INR, I continue to stick to a broad range of 80.80 to 82.50 per dollar levels,” Shinhan Bank’s vice-president (Global Trading Centre) Kunal Sodhani said.

The RBI’s foreign exchange reserves were at a two-year low of $537.52 billion as on September 23. The reserves were at $631.53 billion as on February 25, which was when Russia invaded Ukraine. Last week, the RBI Governor Shaktikanta Das said a major part of the fall in reserves was due to revaluation on account of a stronger US dollar.