Oil Surge Sends Rupee into Free Fall
India's currency market is under pressure as oil prices surge towards $100 per barrel. The Reserve Bank of India (RBI) is selling dollars to slow down the rupee's decline, but this intervention may not be enough to offset the demand for US dollars by local refiners and other buyers.
The Brent crude price has climbed to $99.66, its highest since late July, putting upward pressure on the Indian Rupee (INR). The RBI is selling dollars from its foreign-exchange reserves to slow down the rupee's decline, but this may drain liquidity in the onshore dollar market and push the adjustment into forward and swap markets.
The Reserve Bank of India is trying to stabilize the INR by selling dollars, but it can only do so much. The RBI's efforts are unlikely to make a significant dent in the demand for US dollars by importers and exporters, who will still need to hedge their upcoming dollar payments and manage their dollar receipts.