The rupee loses 53 paises following the surge in crude oil prices; bond yields jump

The rupiah weakened sharply against the US dollar on Monday as global crude oil prices jumped on reports of a production cut by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, traders said.

The rupiah closed at 81.88 per US dollar against its previous close of 81.35 per dollar. So far in 2022, the national currency has depreciated by 9.2% against the greenback. During trading, the rupiah touched a low of 81.93 per dollar, not far from the record intraday low of 81.95 per dollar reached last week.

Government bonds also took a beating on Monday as tighter oil prices stoked inflation concerns in India, given that the country is a major importer of the commodity. The yield on the benchmark 10-year bond closed 7 basis points higher at 7.47%. Bond prices and yields move in opposite directions.

The lack of announcement of the inclusion of Indian bonds in global indices also dragged bonds lower, dealers said. Such a move, which many expected to be announced in late September, would have brought in around $30 billion a year, dealers said.

With speculation of a production cut pushing Brent prices up 3% on Monday, importers rushed to lock in dollar purchases, fearing an even sharper rise in oil prices. That exacerbated the rupee’s slide, dealers said.

OPEC is due to hold a meeting to discuss global production on Wednesday. The most active Brent futures contract last traded near $88 a barrel.

“Global oil prices rallied on news of the OPEC+ meeting to mull production cuts. This put further pressure on USDINR as importers hedged their market exposure,” he said. said Bhaskar Panda, Executive Vice President of Overseas Treasury, HDFC Bank.

The rupee has suffered a period of heightened volatility since the US Federal Reserve announced a longer-than-expected monetary tightening cycle on September 21. The national currency has weakened by 2.3% against the dollar since then.

With higher US interest rates pushing global funds into the world’s largest economy, foreign portfolio investors have recently turned to Indian stock sellers, deepening the rupee’s slide. Over the past week, REITs have pulled about $2.5 billion from domestic stocks, dealers said. Foreign investors finally resumed net purchases of Indian stocks in late July after a nine-month hiatus.

While the Reserve Bank of India reportedly sold dollars around 81.90 to the dollar to rein in rupee weakness, the central bank was reportedly not particularly aggressive in its interventions, dealers said.

“Given FX reserves of around $537bn and liquidity conditions, the RBI may not remain very aggressive in intervention. For USD/INR, I continue to stick to a wide range of 80.80 to 82.50 per dollar,” Shinhan Bank (Global Trading Center) Vice President Kunal Sodhani said.

The RBI’s foreign exchange reserves were at a two-year low of $537.52 billion on September 23. Reserves were $631.53 billion on February 25, when Russia invaded Ukraine. Last week, RBI Governor Shaktikanta Das said much of the decline in reserves was due to revaluation due to a stronger US dollar.

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