Wednesday, September 3, 2008

Rupee ?

Influenced by the rising strength of the dollar, the Indian rupee has been on a depreciating trend since the start of the year. Infact, the rupee fell to 44.88 a dollar, the lowest level in almost 21 months on speculation that oil importers were buying dollars as crude fell toward US$ 100 a barrel. Also contributing to the Indian currency’s decline has been the weakness in the stock market, as foreign investors choose to exit from the same on concerns of a global meltdown. India’s worsening current account position has also played a rose in the rupee’s fall. India imports around 70% of the oil that it consumes and hence the import of oil plays a dominant role in determining the current account position. According to Bloomberg, India's average oil import costs increased to US$ 8.2 bn a month this year, from US$ $5.5 bn in 2007.

Interestingly, as per reports in a leading business daily, exporters who were trying to sell dollars at 40/US$ have chosen to stay on the sidelines when the rupee is just a hair’s breadth away from breaching the 45/US$ mark. The RBI, which actively intervenes in the forex market, has been subdued so far. Unless the fundamentals, which have led to a weakening rupee, drastically change, the RBI is unlikely to favour a stronger rupee.

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