Elevated oil prices pose a challenge to the Indian rupee, and a sustained increase could push the currency to record lows against the U.S. dollar, the head of global foreign exchange at Jefferies told Reuters in an interview.
“With oil breaking higher again, the rupee is starting to weaken,” said Brad Bechtel.
But the Indian rupee will be “one of the more stable currencies out of the whole EM (emerging market) space,” he noted.
Bechtel sees the rupee moving between 83 and 85 against the U.S. dollar, weaker than the prevailing 81-83 range, if oil prices remain high.
The rupee was at 82.9675 on Friday, stronger than its record closing low of 83.21 in the previous session. Brent crude futures fell to $89.82, hovering around a 10-month high of $91.15 hit this week.
India’s central bank has stepped up intervention in the currency markets via the spot market, non-deliverable forwards, and USD/INR futures.
The intervention has supported the rupee and curbed volatility, but “if the RBI were to let it go, then suddenly it’d be a huge wake up call for local corporates … (and) the speculative community who would suddenly jump on the trade.”