Rupee's Sharp Jump To 72 Level In A Month: Here's An Explanation

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    The rupee in Wednesday's trade showed sharp resilience and surged to levels of 72 against the US dollar for the first time since September 21. Here are explained some of the major reasons which pulled the home currency back from 74.5 levels in a month's time. Just before heading on to the explanation, we would like to state that rupee has maintained its opening gains and was quoting higher by 0.75% at 72.12 per US dollar at the time of writing the report.

    Rupee's Sharp Jump To 72 Level In A Month: Here's An Explanation
     

    1. Crude oil price slumps most since 2014: Global crude oil prices taking into account yesterday's fall has clocked nearly 25% decline since October. The heavy correction in oil prices comes on the back of worries of global economic slowdown and increasing supply. The United States surpasses Russia and Saudi Arabia in global crude oil production with produce of 11.6 million barrels per day. Analysts estimate US output to scale past 12 million bpd during the first six months of 2019.

    Further, the US President Donald Trump asked OPEC nations to not cut oil production and thereby support oil prices.

    It is worth mentioning that crude oil has registered biggest decline since heavy losses in prices recorded in the year 2014.

    2. Oil prices softening to ease impact on fiscal deficit and CAD: Crude oil accounts to be the biggest import item of the country and any sharp softening in its price is likely to ease impact on India's CAD and fiscal deficit. As per a Bloomberg report, the country is expected to pay a heavy amount of as much as Rs 8.8 lakh crore or $125 billion in rupee terms against its crude oil import, the highest amount since 2001.

    3. Import duty hike on some items to curb CAD widening: After brent crude surged to levels past $85 per barrel owing to supply side concerns, rupee lost sharply to reach its new low of 74.4825 per dollar on October 11. And in its wake, the government increased tax on import of some of the products to curb the widening current account deficit. For the April-June quarter, CAD has come in at a 4-quarter high of 2.4% of gross domestic product (GDP) on the back of continuous surge in crude oil prices.

     

    4. FIIs comeback to the Indian markets: In view of the RBI's stance to ease liquidity concerns and falling crude oil prices, foreign investors after aggressive selling have returned to the Indian markets and bought debt instruments worth 1.26 billion between October 24 and November 5 and have been net buyers in all of the trading sessions excluding one during this period, as per Bloomberg data.

    Goodreturns.in

    Story first published: Wednesday, November 14, 2018, 13:30 [IST]
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