Oil remains India's worry as rupee, bonds weaken on surge in prices

While most of Asia cheered the truce between the U.S. and China, India’s rupee and bonds weakened amid the biggest surge in oil prices in two years, highlighting the nation’s vulnerability to spikes in energy costs.

The rupee was the only emerging-market Asian currency that weakened Monday as Brent prices rallied 6.2 per cent to $62.4 per barrel. Further gains might outweigh the rub-off effect of the trade war truce on oil-buying countries including India, Indonesia and the Philippines.

“The Indian rupee stands to benefit less from this as India is not as reliant on exports, and the bounce in oil prices could also weigh on the currency,” said Khoon Goh, head of research at Australia & New Zealand Banking Group Ltd. in Singapore.

The rupee declined 0.7per cent to 70.0475 at 11:17 a.m. in Mumbai, while the yield on 10-year bonds rose four basis points to 7.64 per cent.

Asia’s third-largest economy imports about 80 per cent of its oil requirement, and the recent surge in crude prices was the key reason behind the rupee and Indonesia’s rupiah being the worst-performing currencies in the region. The rupee was never really impacted by the U.S.-China trade war as the South Asian nation is not dependent on exports, said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada.

India’s trade deficit is under structural pressures from rising electronics-goods import and higher oil prices, she said.