Rupee tumbles to all time low on rising oil prices

The rupee closed at 68.65/66 per US dollar on Wednesday

The rupee recovered from record lows set on Thursday morning aided by dollar selling intervention by the Reserve Bank of India but weak macro-economic fundamentals and broad dollar strength are likely to keep up the downward pressure on it. Rising crude oil prices deepened concerns about the country's current account deficit and inflation dynamics. The Argentine peso and Turkish lira are among the hardest hit, falling in recent weeks to all-time lows against the United States dollar.

Oil prices rose to a more than three-year high this week, as the US said it would slap sanctions on countries that didn't reduce oil imports from Iran, India's third-largest crude-oil supplier after Saudi Arabia and Iraq.

The Indian currency weakened to 68.9100 per U.S. dollar Thursday, past its previous record of 68.8650 reached in November 2016.

The Indian rupee slumped due to a rise in crude prices due to which the selloff of the emerging-market took a toll on the currency of the country. The erosion in rupee's value has reportedly adversely impacted the bond market - the 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent on Wednesday.

"Weakening at this pace shatters confidence".

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India is a massive importer of oil, securing more than two-thirds of its needs from overseas.

However, if more money is poured into the Indian capital markets, the government can manage the currency flow.

Higher opening of the domestic equity market also propped up the rupee.

India's exports grew 20.18 per cent to Dollars 28.86 billion in May - the highest in six months, even though the trade deficit widened to a four month high of USD 14.62 billion. The 30-share index, which had lost 272.93 points in the previous session, fell further by 90.26 points, or 0.25 per cent to 35,126.85. What's worse, the fall has increased the chances of a rate hike by the Reserve Bank of India when its monetary policy panel meets in August.

"India's low dependence on foreign-currency borrowing to fund its debt burden limits the risk of currency depreciation transmitting into materially weaker debt affordability", Moody's added.

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