Explained: Why the rise in global crude oil prices is weakening the rupeehttps://indianexpress.com/article/explained/rise-in-global-brent-crude-oil-prices-weakening-the-rupee-5665131/

Explained: Why the rise in global crude oil prices is weakening the rupee

Experts feel that if crude oil continues to rise, the rupee may come under further pressure as it will lead to a rise in the overall import cost.

The rupee fell 30 paise lower to trade at around 69.5 against the dollar on Monday.

Having strengthened significantly in March 2019, on account of strong inflow of funds by foreign portfolio investors, the rupee fell 30 paise lower to trade at around 69.5 against the dollar on Monday.

It has lost nearly Rs 1.1 against the dollar over the last five days from a level of 68.45 on April 3, 2019, to now trade at around 69.5. The fall in rupee has been in line with a jump in global crude oil prices.

On Monday, the Brent crude was trading at $70.7 per barrel, its highest level in the last five months. Experts feel that if crude oil continues to rise, the rupee may come under further pressure as it will lead to a rise in the overall import cost.

Why is the Brent crude rising?

With concerns growing over supply from OPEC and US sanctions on Venezuela, Brent crude oil prices have risen over the last 10-days from a level of $66 per barrel on March 28 to $70.7 on Monday.

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Will rupee weaken further?

If the Brent crude oil prices continue to rise, it may put additional pressure on the rupee. However, expectations of weakening global growth may limit its rise. Besides, a continued rise in inflow of FPI money will provide some support to the rupee.

Crude traditionally has been a big determinant of rupee movement. In October 2018, the rupee had fallen to its all-time low of 74.34 against the dollar in line with the rising crude oil prices.

Brent crude had hit a level of $86 per barrel in October, putting pressure on the rupee and India’s current account deficit. However, as the crude oil prices declined over the following months to levels of around $52 per barrel by the end of December 2018, it offered a much-needed relief to the rupee and the economy.