Trade war, oil price drag rupee to near record low

Bengaluru: Global trade tensions and rising oil prices are expected to weaken India’s rupee over the next year, a Reuters poll has found, dragging the currency closer to the record low hit last week against the dollar.

While economic growth has picked up and India has retained its spot as the fastest growing major economy this year, the rupee hit an all-time low of 69.09 per dollar last week and is the worst-performing currency in Asia this year.

The rupee, already down more than 7 percent this year, has been pressured by a sell-off in emerging markets driven by the daily escalation in global trade tensions and the rising price of oil, India’s biggest import item.

“We are pretty bearish at this moment, given all the circumstances combined. Not only high oil prices but also the trade war that has been taking off,” said Hugo Erken, senior economist at Rabobank. “The external pressure is really building at the moment. This is not good for the Indian currency.”

India’s finances will also be hit

  • “India is obviously one of those countries with higher exposure to commodities, especially oil imports, dragging the current account to a deeper stretch going forward and this is basically negative for INR,” said Prakash Sakpal, economist at ING, who has the most pessimistic 12-month call of 72.80.
  •  India’s finances will also be hit by the increase to the government-mandated price for summer-sown crops to the highest since PM Modi came to power as he looks to woo millions of poor farmers ahead of election next year.
  •  Asian currencies and foreign exchange markets will more likely be driven by how the current trade dynamics play out after the July 6 deadline passes for the United States to impose tariffs on some of the Chinese goods.
  •  A separate poll on China’s yuan showed it will have failed to reverse June’s losses against the dollar even a year from now. On the rupee, not all respondents were bearish.
  •  Several strategists said the expected policy tightening by the Reserve Bank of India would help the rupee.

Fuel prices rise again, petrol at Rs 75.85 in Delhi

  • Fuel prices across the four metro cities rose for the second straight day on Friday after declining for over a month.
  • Petrol prices in Delhi rose by 14 paise to Rs75.85 per litre, from Rs75.71 on Thursday, data on the Indian Oil Corp’s website showed.
  • In Kolkata, Mumbai and Chennai, petrol was sold for Rs78.53, Rs83.24 and Rs78.72 per litre, up from the previous levels of Rs78.39, Rs83.10 and Rs78.57 per litre.
  • This rise comes after prices started to decline on May 30. Also, both the petrol and diesel prices were unchanged for nine days till June 4.
  • In tandem with the cost of petrol, diesel prices also registered a rise for the second day in a row across the four metro cities.
  • In the national capital, diesel was sold at Rs67.66 per litre, up from Rs67.50 on Thursday.
  • Rise in diesel prices gains significance as the fuel is used in the transportation of agriculture and food products.