The Indian rupee hit a new all-time low of ₹96.44 per US dollar on Tuesday, slipping past the previous lifetime low of ₹96.3875 hit on Monday. According to The Hindu BusinessLine, the currency's losses since the Iran war broke out in late February now total 6%. The rupee has been in the news frequently over the last few weeks, with this latest decline continuing the sustained pressure on the currency. The currency has now depreciated 7% so far this year, reflecting sustained pressure from multiple factors including the protracted Iran conflict driving a sustained surge in oil prices and pushing U.S. Treasury yields higher.
As reported by NDTV Profit, the rupee's decline is being driven by elevated crude oil prices, global uncertainty, and a stronger dollar. Market experts note that sustained foreign institutional investor outflows are also contributing to the currency weakness. Harshal Dasani, Business Head at INVAsset PMS, explains that these factors are collectively pressuring India's import bill and balance of payments comfort. The combination of high crude prices, underpinned by the prolonged U.S.-Iran impasse, and subdued capital inflows is widening India's external imbalances and leaving the rupee vulnerable. U.S. Treasury yields have also surged to their highest level in a year, with investors increasingly pricing in the possibility of a Federal Reserve rate hike this year, making it more challenging for India to attract the capital inflows needed to finance its current account deficit.
According to The Hindu BusinessLine, high oil prices are already feeding through to India's external and inflation dynamics. The merchandise trade deficit widened to $28.38 billion in April, driven largely by a surge in crude oil imports to a six-month high. At the same time, April wholesale inflation accelerated to its highest level in three-and-a-half years, underscoring the pass-through of higher energy costs. Economists expect India's current account deficit to widen significantly in the current fiscal year, with India's balance of payments set to widen to a deficit in the range of $65 to $70 billion this year, marking a third straight year of deficits. Prime Minister Narendra Modi's recent calls to conserve fuel and foreign exchange highlight the scale of pressure on the economy.
As reported by NDTV Profit, within days of levying high customs duties on precious metals, the government on Saturday imposed import curbs on silver by putting the metal under a licensed regime for inbound shipments. The government had hiked import duty on precious metals - gold and silver - from 6% to 15% on May 13, with the effective duty (including 3% IGST) exceeding 18%. This follows the government's recent policy of controlling precious metal imports through various measures. HSBC notes that India faces a two-fold challenge...to lower the current account deficit and attract capital inflows that are sustainable, with the continued distribution of FX market pressure between currency weakness and FX reserve use helping to manage the situation.
