Rupee Weakens Beyond 60 for First Time in a Month on Oil Concern

The rupee weakened past 60 per dollar for the first time in more than a month on concern a surge in global oil prices will widen India’s trade deficit.

Brent crude jumped to $114.69 a barrel on June 13, the highest since September, on concern escalating violence in Iraq will disrupt supplies. The rupee slumped 1 percent last week as a government report showed India’s trade shortfall climbed to a 10-month high of $11.24 billion in May. It pared today’s losses after a central bank adviser said it will weather higher energy prices and is unlikely to weaken “much beyond” 60.

“I don’t see the rupee depreciating beyond 60 and since the RBI is acquiring reserves, it won’t appreciate much either,” Ashima Goyal, a member of the Reserve Bank of India’s technical advisory committee, which makes recommendations to Governor Raghuram Rajan on monetary policy, said in a phone interview today.

The rupee closed 0.7 percent lower at 60.1650 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency fell to 60.2250 earlier, the weakest level since May 6.

“Crude oil prices are the major dampener for the rupee market today,” said Kishore Narne, Mumbai-based head of commodities and currencies at Motilal Oswal Commodities Broker Ltd. “If oil supplies get disrupted and there is a spillover impact, it will hurt India.”

‘Inflation Differential’

“I don’t think there is any serious threat to” the RBI’s 8 percent CPI “target from the short-term commodity prices,” RBI adviser Goyal said. “The rupee is stable and that will help inflation; 60 is a good value for the rupee to be given our inflation differential.”

Wholesale-price inflation accelerated to 6.01 percent in May, the fastest pace since December, compared with 5.2 percent gain in April, according to commerce ministry release today.

One-month implied volatility in the rupee, a gauge of expected moves in the exchange rate used to price options, rose 120 basis points, or 1.2 percentage point, to 8.16 percent, according to data compiled by Bloomberg.

Three-month offshore non-deliverable forwards on the rupee fell 0.6 percent to 60.97 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in the U.S. currency.

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