Re falls on concern over import costs as oil price reaches $86

Re falls on concern over import costs as oil price reaches $86

The rupee fell on concern that oil prices at a record high will increase the country’s import costs and demand for dollars.

India meets three-quarters of its energy needs through imports. The rupee, the second-best performer among Asia-Pacific’s 10 most-actively traded currencies this year, also dropped on speculation that the central bank will sell the currency to curb a rally that threatens to erode export earnings.

“Oil at $86 (Rs3,379.8) is a negative for the rupee," said Rohan Lasrado, a currency trader at HDFC Bank Ltd in Mumbai. “Oil companies are likely to be dollar buyerstoday."

The rupee fell 0.1% to 39.355 per dollar as of the 5pm close in Mumbai, according to data compiled by Bloomberg. The currency dropped as low as 39.27 on 11 October, the strongest since February 1998.

Crude oil rose as high as a record $87.97 a barrel because of concern Turkey may attack Kurdish militants in Iraq and disrupt shipments.

The commodity has rallied 38% in the past six months, according to data compiled by Bloomberg.

Rising oil imports are causing India’s trade deficit to widen.

The shortfall jumped 42% to $21.6 billion in the three months through June from the previous quarter, the central bank said on 28 September. Shipments of oil from abroad averaged $5.2 billion a month in the first five months of the fiscal year that started 1 April, compared with $4.7 billion in the year-ago period, according to government calculations.

The rupee also declined on concern the central bank would sell it for dollars to protect exports. The currency is “way above the comfort level" and the government may take steps to help exporters cope with the exchange rate, finance minister P. Chidambaram had said on 25 September.

“The central bank has been buying dollars in recent weeks," said HDFC Bank’s Lasrado. “That may add to the downward pressure on the rupee today."

Growth in merchandise exports slowed to an average rate of 14.4% in the eight months through August, from 22.4% a year earlier, according to government data.

An accelerated increase in the Reserve Bank of India’s foreign-exchange reserves suggests it has been selling rupees for dollars. Bloomberg