Rupee depreciates 9.2% against dollar on OPEC cuts

On Monday, the weakened sharply against the dollar, as global crude oil prices surged amid reports of a reduction in output by the Organization of the Petroleum Exporting Countries OPEC and its allies.

The domestic currency has depreciated 9.2 per cent against the dollar, as it closed at 81.88 per versus its previous close of 81.35 per So far in 2022. The low was 81.93 per dollar, not far from the record intraday low of 81.95 per dollar touched last week.

On Monday, government bonds took a beating because of the hardening of oil prices, which sparked concerns about India's inflation, given that the country is a major importer of the commodity. The yield on the 10 year benchmark bond was 7 basis points higher at 7.47 per cent. Bond prices and yields move inversely.

The lack of an announcement of the inclusion of India's bonds in global indices dragged bonds lower, dealers said. According to dealers, the move, which many were expecting to be announced at the end of September, would have brought inflows worth around $30 billion over a year.

With the speculation of an output cut sending Brent crude prices 3 per cent higher on Monday, importers rushed to lock in dollar purchases, fearing an even bigger rise in oil prices. The rupee's fall was exacerbated by this, dealers said.

On Wednesday, the OPEC will hold a meeting to discuss global output. The most active Brent crude futures contract was last traded close to $88 per barrel.

Global oil prices rallied on the OPEC meeting to mull production cuts. The importers hedged their exposure to the market, which put further pressure on USDINR, said Bhaskar Panda, executive vice-president of overseas treasury, HDFC Bank.

The rupee has suffered a spell of heightened volatility since the US Federal Reserve signaled a longer than expected monetary tightening cycle on September 21. Since then, the domestic currency has weakened 2.3 per cent against the dollar.

Foreign portfolio investors have turned sellers of Indian equities of late, aggravating the rupee's fall because of higher US interest rates pushing global funds towards the world's largest economy. FPIs pulled out $2.5 billion worth of domestic stocks over the last week, dealers said. After a hiatus of nine months, overseas investors resumed net purchases of Indian equities in late July.

While the Reserve Bank of India was said to have sold dollars around the 81.90 per dollar mark in order to counter the weakness of the rupee, the central bank was not said to have been particularly aggressive in its interventions, dealers said.

Given the FX reserves now around $537 billion and the liquidity conditions, the RBI may not be very aggressive when it comes to intervention. Shinhan Bank's vice-president Global Trading Centre Kunal Sodhani said that for USD INR, I stick to a broad range of 80.80 to 82.50 per dollar levels.

The foreign exchange reserves of the RBI were at a two-year low of $537.52 billion on September 23. The reserves were $631.53 billion as of February 25, which was when Russia invaded Ukraine. Last week, RBI Governor Shaktikanta Das said that a major part of the fall in reserves was due to revaluation on account of a stronger reserve.