The Indian currency plummeted to a new record low on Friday, March 27. It now stands at 94.85 to the dollar, just 15 paise away from the psychologically catastrophic 95-mark that forex traders have been dreading for weeks.
This week’s crash, which shaved off 89 paise on Friday alone, is thanks to a brutal cocktail of higher Brent crude, thanks to the Middle East conflict that refuses to wind down, and dollar appreciation.
Weaker rupee and dearer crude oil spell double trouble for India, which many analysts say would lead to significant energy-led inflation. Petrol from private operators like Nayara is already expensive, and the only reason the state-run oil firms have not propped up the fuel prices is due to Friday’s excise duty cut on petrol and diesel by ₹10 a litre. Airline tickets are already expensive, but inflation could lift them up further.
Foreign Institutional Investors (FIIs) pulling out a little over Rs 4,300 crore from the market on Friday alone makes things worse.
The Reserve Bank of India has been using the nation’s forex reserves as a firewall for defending the currency. But the latest RBI data as of March 20 shows that it shrank by $11.41 billion to $698.35 billion for that week.
If crude oil prices do not show a meaningful correction, ₹94 to the dollar would become the new normal. All eyes would be on RBI and the global crude prices next week, as the Indian currency nears the dreaded 95 mark.
