India’s rupee fell to within 0.4 percent of a record low after oil prices surged on concern the U.S. is moving closer to striking Syria.
Brent crude rose 1.2 percent yesterday as House of Representatives Speaker John Boehner and Majority Leader Eric Cantor backed President Barack Obama’s call for military action. The rupee could sink to unprecedented levels beyond 70 per dollar and the Reserve Bank of India’s struggle to stem the drop has hurt its credibility, said Arvind Virmani, one of the central bank’s advisers, as the currency tops incoming Governor Raghuram Rajan’s agenda.
“Syria is just one of the concerns India is facing,” said Naveen Raghuvanshi, a trader at Development Credit Bank Ltd. (DEVB) in Mumbai. “I would be cautious today as Rajan may make an announcement that could spur gains in the rupee.”
The rupee slid 0.8 percent to 68.26 per dollar as of 10:06 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It fell to 68.62 earlier, approaching an all-time low of 68.8450 touched Aug. 28. The currency has weakened 19.4 percent this year, set for the worst loss since 1991 when the nation had to pawn its gold for loans to pay for imports.
The rupee pared today’s losses on speculation the RBI sold dollars, according to two traders, who asked not to be named as the information isn’t public.
Higher crude prices and a weaker rupee threaten to stoke inflation in India, which imports about 80 percent of its oil. The nation had a record current-account deficit in the year ended March 31 and the economy grew last quarter at the slowest pace since 2009, according to official data.
Rajan, who predicted the 2008 global financial crisis and is a former International Monetary Fund chief economist, has been appointed RBI governor for three years. He brings with him an authority that could usher in changes at the RBI and influence reforms both at financial regulators and in the Finance Ministry, Virmani said in e-mailed comments yesterday.
Three-month onshore rupee forwards fell 0.9 percent to 69.81 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts were little changed at 70.30. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
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