Mumbai: The rupee fell to the lowest level in almost 18 months on speculation that local refiners will buy foreign currency to pay for crude oil imports, taking advantage of a decline in the cost of the commodity.
The rupee declined for a fourth day as crude oil traded near a five-month low. India imports about three-quarters of the oil it uses.
“Dollar demand from oil companies is definitely one of the factors pressuring the rupee down,” said Krishnamurthy Harihar, treasurer at Development Credit Bank Ltd. “Demand for commodities such as oil and gold may be increasing now that they’ve become more affordable.”
The rupee declined 0.5% to 44.40 per dollar at the 5pm close in Mumbai, the lowest since 6 March 2007, according to data compiled by Bloomberg. The currency has lost 11.3% this year, after gaining 12.3% in 2007.
Oil prices fell as low as $105.46 (Rs4,672) a barrel after hurricane Gustav weakened before striking the Louisiana coast, easing concern it would damage rigs and refineries.
Meanwhile, the government on Monday appointed D. Subbarao, an economist who called raising rates the “obvious” choice to tackle accelerating inflation, as governor of the Reserve Bank of India.
Subbarao, who has been the top bureaucrat at the finance ministry since 2007, will succeed Y.V. Reddy. The change comes at a time when the economy in the second quarter expanded at the slowest pace since 2004, inflation flared up to a 16-year high and portfolio sales by foreign funds weakened the local currency.
Subbarao “has experience on the fiscal side, so he can handle inflation and growth,” said Chanda Kochhar, joint managing director at ICICI Bank Ltd.