Indian rupee hits record low past 96/USD as oil surge fans economic worries

MUMBAI: The Indian rupee weakened to an all-time low on Friday, as oil prices neared $110 per barrel, intensifying economic challenges for the world’s third-biggest crude importer, with strains emerging in key indicators.

The rupee fell 0.4% to 96.1350 per U.S. dollar, eclipsing its previous all-time low of 95.9575 hit in the previous session.

The rupee ended the session at 95.9650, down 1.5% week-on-week.

The currency has declined over 6% year-to-date and is Asia’s worst-performing unit, battered by persistent capital outflows and worries over the balance of payments strain as the Iran war keeps energy prices on the boil.

Brent crude futures rose over 3% to $109 per barrel on Friday, heightening worries over global inflation and sending bond yields higher on rising expectations of interest rate hikes this year.

“The longer the conflict dragged on, the more the effects would manifest in the form of higher inflation, weaker economic growth, and a deterioration in external balances especially for large net energy importers,” Khoon Goh, head of Asia Research at ANZ, said in a note.

“Central banks in the region might be forced to tighten policy in response to the inflation shock as well as to stabilise exchange rates,” the note said.

Asian currencies were down between 0.3% and 0.8%, while regional stocks slumped more than 2%.

Data signal strain

Data on Friday showed that India’s merchandise trade deficit widened to $28.38 billion in April, as the Middle East conflict hindered shipments and disrupted energy imports, making them costlier. India imports more than 80% of its crude oil needs and 60% of its cooking gas.

The trade data followed figures showing India’s wholesale inflation quickened to a three-and-a-half-year high in April.

Following modest retail fuel price hikes on Friday, economists at Goldman Sachs expect India’s consumer inflation to average around 4% in May and forecast two 25-basis-point rate hikes in October and December.

India’s 10-year bond yield rose to an over five-week high of 7.07%, up 9 bps this week, while the benchmark equity index Nifty 50 declined over 2% week-on-week.