Indian rupee set to gain strength imminently!
The persistent decline in oil prices will reduce stress on India’s trade deficit.
Indian rupee is set to strengthen further in coming days due to the decline in global oil prices, so those non-resident Indian (NRIs) who want to benefit from the better exchange rates, should remit now.
In the immediate future, the persistent decline in oil prices due to the glut in global supply will reduce stress on India’s trade deficit as crude is the largest import bill for New Delhi.
The rupee surged for the 6th day on Tuesday after the Reserve Bank of India said a day earlier that it would inject Rs80 billion (Dh4.11 billion) into the market by purchasing government securities on November 22, 2018. The decision comes amid concerns of a liquidity crisis in the economy after the financial services company IL&FS reported defaults in September.
The rupee advanced 0.5 per cent to 71.282 per dollar at noontime on Tuesday.
“Indian rupee is in many ways a function of crude oil price and that relationship has stayed true during the current crude oil plunge. The reason being India imports nearly 1.5 billion barrels of oil annually and every $20 drop in crude saves the country almost $30 billion worth of forex reserves,” said Vijay Valecha, chief market analysis, Century Financial.
“This amount saved helps in reduction of current account deficit (CAD) by more than 1 percentage of the GDP and it is certainly not a small amount. So it is not surprising that Indian rupee has rallied and UAE dirham is likely to fall to 19.30 against the dirham in the coming days,” he said.
The Indian rupee weakened to a record low of 20.26 against the UAE dirham on October 10, 2018, and has been appreciating thereafter due to favourable factors. It appreciated and closed at 19.58 against dirham on November 16, 2018.
Rajiv Raipancholia, CEO, Orient Exchange, sees rupee could weaken by the end of first-quarter 2019 due to a host of domestic and international factors including rising in oil price, the weaker government in New Delhi, high inflation in India and US interest rates hike due to the strengthening of US dollar.
“With supply cut, the oil prices are expected to go up from the present level of $75 to $80 per barrel. The continued strength of the US dollar with further interest rate hikes and reduce the inflow of dollar to India. The inflation is expected to increase. The political atmosphere points to a weak Government at the centre by May 2019. All these factors indicate a weaker rupee by March 2019. Hence, rupee can depreciate to 75.00 per US dollar – or 20.42 against dirham – in next four to five months,” he said.
Owing to the consistent decline in crude prices, oil producing group Opec will most likely cut output by 1 million barrels per day during its December 2018 meeting in Vienna. Oil prices have risen by 30 per cent this year alone to over $85 a barrel in October 2018. From $85 a barrel in October 2018, now oil has come down to $67 a barrel, reducing India’s oil import bill considerably was one of the reasons for rupee appreciation to 19.6 now.