The rupee on Monday plunged by 68 paise to 71.60 against the US dollar as crude prices soared 20 per cent following drone attacks on Saudi Arabia’s oil facilities.
The currency opened lower at 71.54, then fell to a low of 71.63 during the day and finally closed at 71.60, down 68 paise over its previous close as the rise in oil prices hit the forex market sentiment. The rupee had settled at 70.92 against the US dollar on Friday. On the other hand, despite the government announcing a package for the real estate and export sector, stock markets registered their worst fall in over two weeks. The BSE benchmark Sensex fell 262 points, or 0.70 per cent, lower at 37,123.31after plunging about 356 points in intra-day trade. Likewise, the broader NSE Nifty closed 79.80 points, or 0.72 per cent, down at 10,996.10.
Instability in oil prices may trigger currency volatility, inflation rise
While crude price stability has been a big comfort for the Indian economy over the last few years, a sudden spike in the prices on Monday following drone attacks on Saudi Arabia’s oil facilities may hurt the economy in terms of widening of current account deficit, currency volatility and domestic inflation.
Pushkar Mukewar, co-founder and co-CEO of Drip Capital said, “If production is not resumed soon, such a rise could hurt the global economy as consumer costs will also go up. This will definitely affect India, where the economy is already stressed.”
Finance Minister Nirmala Sitharaman on Saturday unveiled measures for exporters and the real estate sector, including setting up of a stressed asset fund, as part of efforts to boost economic growth from a six-year low. However, geo-political tensions diverted the attention of investors from the government measures.
Vinod Nair, head of research, Geojit Financial Services, said, “The third stimulus package did not enthuse the market given the lagging benefit to export and housing segment by the end of the fiscal year. The sudden jump in crude prices developed concern over higher inflation and ability of the RBI to cut interest rate in the future …”
Shares of oil and gas companies HPCL, BPCL, IOC, Castrol India and Reliance Industries plunged as much as 7 per cent. Stocks of aviation firms SpiceJet, InterGlobe Aviation and Jet Airways also fell up to 3.95 per cent. Top losers in the Sensex pack included M&M, SBI, Yes Bank, Asian Paints, HDFC, Tata Steel and L&T, all shedding up to 2.55 per cent.