Indian rupee could become a collateral damage in the OPEC+ decision to curtail crude production, with the spurt in oil prices expected to send the currency nose diving to ₹85 per US dollar on a near-to-mid term basis, market players said.
The rising strength of the dollar is another factor which will add to the downward spiral in the rupee value.
A plunge in rupee value will lead to a surge in non-resident Indians (NRI) remittances, especially from the Gulf region, to India, as expats can get more bucks for each dollar remitted.
“The recent OPEC+ decision on production cuts and crude oil price rally has put the rupee’s stability at risk,” Ajay Kedia, managing director of Kedia Commtrade and Research, told Arabian Business.
“A potential test of $100 for crude prices, along with rising inflation and the current unseasonal weather conditions hitting some of the crop productions in India may lead to a further weakening of rupee,” Kedia said.
He foresees chances of rupee hitting ₹85 per USD in the next few months.
The Indian currency dropped to an intra-day low of a low of 82.46 against the US dollar before closing at 82.31 on Monday as a strong American currency in the overseas market and firm crude oil prices weighed on investor sentiments.
A surge in oil prices could lead to a rebound in inflation, impacting global economic recovery.
The currency, stock and commodity markets are closed in India on Tuesday on account of the Jain festival Mahavir Jayanti.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.08 percent higher at 102.58 on Monday.
Monday also saw global oil benchmark Brent crude futures advanced 5.28 percent to $84.11 per barrel.
Market players said rupee could see a major fall when markets open on Wednesday as oil prices are expected to firm up further in the coming days, which could lead to ballooning of India’s oil import bill.
India is the second largest oil importer globally, after China, and a rise in her oil import bill will adversely impact the current account deficit – the difference between the country’s export and import earnings.
Rupee fall expected to boost expat remittances
The projected rout in rupee is expected to lead to a spike in expat Indian remittances, especially from the Gulf region, in the coming weeks as they can earn more bucks for each dollar remitted.
Banking circles said historically, NRI remittances, especially from the Middle East, see a surge in remittances when rupee hits a downward spiral.
NRIs based in the Gulf region account for a larger chunk of expat remittances to India.
Remittances sent to India by overseas Indians were about $100 billion for the year 2022, an increase of 12 percent in one year.
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