A cheaper rupee could increase India’s crude oil bill by as much as US$26 billion in the financial year 2018/19, ending March 2019
AUG 31, 2018: India’s currency, the rupee, hit a new record low against the U.S. dollar on Thursday on the back of rising oil prices, end-month demand for dollars, and concerns about the health of the emerging markets after the Turkey crisis.
The rupee slumped to an all-time low of 70.81 against the dollar, beating the previous record low from just yesterday—70.475, for a total 11 percent depreciation since the beginning of this year.
Rising oil prices and the weakening currency have already created a perfect storm for India, where oil demand growth has been surging, but the higher oil prices are increasing the country’s spending on crude oil imports, which account for 80 percent of Indian oil consumption.
As early as in May this year, India’s Petroleum Minister Dharmendra Pradhan pleaded for “stable and moderate” prices with Saudi Arabia’s Energy Minister Khalid al-Falih, as Brent Crude prices briefly broke above $80 a barrel, sending gasoline and diesel prices in India surging to a five-year-high, also due to a weakening rupee against the dollar.
By the middle of the next decade, India will pass China as the country with the biggest appetite for oil, according energy consultants Wood Mackenzie.
Related Article: India’s Oil Appetite is Growing, And Its Refineries Can’t Keep Up
Earlier this week, economists told CNBC that they expect the Indian currency to further slide by the end of this year, widening India’s oil import bill and deteriorating its trade deficit and current accounts.
“The net trade oil deficit has widened considerably, owing to a combination of high oil prices and a weak currency,” DBS economist Radhika Rao told CNBC.
A cheaper rupee could increase India’s crude oil bill by as much as US$26 billion in the financial year 2018/19, ending March 2019, according to Indian government officials.
Although India’s economic growth continues to be robust, higher oil prices and rising interest rates are raising pressure on India’s budget and current account, Moody’s said in a report on Wednesday.
“Higher oil prices and interest rates will put pressure on the government’s budget and the current account,” Joy Rankothge, a Moody’s Vice President and Senior Analyst, noted.
Vijay Valecha, chief market analyst at Century Financial Brokers in UAE tol Khaleej Times that India’s government seems unconcerned as some of its officials expressed an opinion that the currency should be allowed to find its natural level.