Mumbai: The rupee fell on speculation that crude oil near a record high will increase demand for dollars needed to pay for the commodity.
The local currency extended a four-week decline as companies including Indian Oil Corp., the nation’s biggest refiner, stepped up dollar purchases after oil became costlier by almost 33% this year.
Energy costs may also widen the nation’s current account deficit as Asia’s third largest economy ships in three quarters of the oil it needs from overseas.
“Importers are more aggressive in buying dollars due to the rapid increase in oil,” said Indrajit Sengupta, a currency trader at state-owned Canara Bank in Mumbai. “Since there is no matching dollar supply, the rupee will be under pressure in the near term.”
The rupee declined 0.2% to 42.595 per dollar at the 5pm close in Mumbai, from 42.5125 on 16 May. Markets were closed on Monday.
The value of oil imports in the 12 months through March climbed 23.5% to $71.8 billion (Rs3.06 trillion) from a year earlier, helping widen the trade deficit to $80.4 billion. The current account shortfall widened to $5.4 billion in the three months ended 31 December from $3.7 billion a year earlier and $4.7 billion in the preceding quarter, the Reserve Bank of India said on 31 March.
Crude oil traded above $127 a barrel in after-hours trading on the New York Mercantile Exchange after touching an all-time high of $127.82 on 16 May.