Oil prices may cap rupee rise

Mumbai: While the rupee posted sharp gains on Friday against the US dollar after Moody’s upgraded India’s sovereign rating and changed its outlook to stable from positive, forex experts feel that that a rise in global crude oil prices and higher domestic inflation are likely to cap any major upside in the Indian currency in the near term.

On Friday, rupee surged over 1 per cent in the intra-day trade before ending the day at 65.02 a dollar, up 0.47 per cent from its previous sessions close of 65.32.

Ever since the government came to power in 2014, experts pointed out that the lower crude oil prices over the last few years had helped the government to significantly improve India’s macro economic indicators.

“The rise in global oil prices could upset these equations. If the price of crude oil hovers around the current levels, the rupee is likely to remain in the range of 64.50–65.50 against the US dollar. However, panic could set in the forex markets if there are any indications of a major upswing in oil price that could lead to some sharp depreciation in the rupee beyond 66 per dollar,” said Hariprasad MP, head of treasury, Centrum Direct.

According to him, rise in domestic inflation is also likely to put further pressure on rupee.

Analysts at Nomura Financial Services said that the change in Moody’s ratings is a positive for rupee in the medium term as it lends credibility to the ongoing reform agenda, which should support higher capital inflows ameliorating some concerns over current account deficit financing.

However, they expressed concern regarding the near-term risk stemming from oil prices.