Crude oil prices witnessed a sharp jump in the last two days and are approaching $85 a barrel, and can potentially upset the fiscal math of the government, which promised to keep fiscal deficit contained at 3.3 per cent of the gross domestic product.
At 10.35 AM, rupee was trading at 73.33, after hitting at an intraday low of 73.42 a dollar. The currency had closed at 72.91 a dollar on Monday. Tuesday was a national holiday. Rupee has fallen more than 12 per cent so far this year and is the worst performing currency in Asia.
“RBI is intervening, but not big time,” said a senior currency trader at a foreign bank.
Rupee’s sharp loss was not echoed by other Asian currencies, which are trading mixed. Philippines and South Korean currencies are marginally up, whereas Indonesia is down.
The dollar index, which measures the greenback’s strength against major global currencies, was down 0.18 per cent to 95.33 at 10.35 AM IST.
“It is difficult to say if the dollar demand is coming from oil marketing companies, as it is just the start of the month. Typically, they come in the market in the middle of the month and increase demand in the month-end,” said the currency dealer quoted above.
The market is now increasingly talking about a direct dollar swap facility for the oil companies with the RBI. Besides, the RBI will most definitely raise its rates sharply this week to fight a currency slide, dealers are saying.
The rise in crude oil prices and the prospects of upsetting the fiscal math, including sharp rate hike expectations this week, have resulted in a bearish sentiment in the bond market as well.
The 10-year bond yields, which dipped below 8 per cent on Monday, was trading at 8.05 per cent, despite RBI freeing up Rs 2 trillion worth of liquidity in the market, as well as announcing Rs 360 billion worth of secondary market bond purchases this month.