Indian rupee hits all-time low against UAE dirham as oil prices surge

Rupee drops to 20.97 against Emirati dirham

A Staff Reporter

Published: Mon 7 Mar 2022, 11:02 AM

The Indian rupee fell to a historic low on Monday, while bond yields surged as a sharp rise in global prices of crude oil stirred concern about domestic inflation, strengthening prospects for interest rate hikes by the central bank.

India imports more than two-thirds of its oil needs and high prices are likely to widen its trade and current account deficits and boost imported inflation.

The partially convertible rupee was trading at 76.86/87 against the dollar by 0545 GMT, after dropping 81 paise to 76.98 (20.97 versus the UAE dirham), its weakest level ever. It closed Friday at 76.16.

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The rupee struck its previous record low of 76.9050 on April 22, 2020, in the grip of the Covid-19 pandemic.

"There was some dollar selling that came in from state-run banks soon after the rupee touched life lows," said a senior trader at a private bank.

"But depending on how stocks perform, we can see the rupee weaken again unless there is heavy intervention."

The Reserve Bank of India usually sells dollars via state-run banks to prevent sharp moves in the rupee. With forex reserves at $631.53 billion by early March, traders feel it has enough firepower to avert a much sharper fall in the currency.

Last week, economists and analysts said India's trade and current account deficits were likely to widen, putting pressure on the rupee, as global oil prices surge and the domestic economy re-opens from a third wave of the pandemic.

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Indian shares tumbled more than 2 per cent, with investors dumping risky assets as oil prices soared after the United States and European allies were said to be mulling a Russian oil import ban.

The Indian rupee started weak this Monday morning as the dollar spiked along with crude oil this morning, said Sriram Iyer, senior research analyst at Reliance Securities.

Iyer added that the Reserve Bank of India (RBI) could be present to curb volatility. The US dollar and the yen are trading stronger this Monday morning in Asian trade as investors moved towards the safe-haven assets, Iyer noted.