MUMBAI, Oct 8 (Reuters) – The Indian rupee’s drop after a Reserve Bank of India rate hike and stance change on Wednesday that some economists said was hawkish has left the currency vulnerable to further losses, with higher oil prices adding to pressure.
The rupee fell 0.4% on Wednesday to 96.7750 per dollar, its weakest level since mid-May, just 18 paise shy of its all-time low of 96.96.
The fall was notable since it came after days in which the RBI had appeared comfortable with only a measured weakening. The slide surprised several market participants, particularly considering that external cues had not deteriorated materially.”The fall reflects a catch-up in domestic positioning and hedging after the RBI’s policy decision,” a currency trader at a private sector bank said.
“Yesterday’s move has set the rupee up for further losses, and today’s session will be key in determining whether the RBI is comfortable allowing the currency to reset to a weaker level.”
The 97 per dollar mark will be important for near-term flows, he added, noting that a break past that threshold could prompt importers to step up hedging, while exporters may hold back.
HAWKISH HIKE
Goldman Sachs characterised the RBI’s move as a hawkish rate hike, pointing to the change in stance and the central bank’s communication. The brokerage expects the repo rate to rise by another 25 basis points in December.
OIL PRESSURE
Adding to the rupee’s woes on Thursday is a further rise in oil prices, which have been a key source of pressure on the currency in recent months. India relies on imports for most of its crude oil requirement.
Brent crude climbed more than $2 to above $102 a barrel on Thursday on persistent worries about supply from the key Middle East producing region amid an increase in attacks on shipping in the Gulf and the Strait of Hormuz.
($1 = 96.76 Indian rupees)
(1 Indian rupee = $0.0103)
Reporting by Nimesh Vora; Editing by Ronojoy Mazumdar
