DNA Money Edit: Inverse growth of crude, rupee

The rupee rout on Wednesday has provided a perfect backdrop for the 3-day bi-monthly monetary policy review meeting by the Reserve Bank of India (RBI) in Mumbai. The rupee, which touched an all-time low of 73.41 against the dollar, may have pushed the central bank to turn hawkish. RBI is widely expected to raise the rate at which it lends to banks (called repo rate in banking parlance) on Friday in a bid to slow the rupee’s decline and rein in inflationary pressures.

The rupee has continued its downward spiral on back of a consistent rise in crude oil price, which has already breached $85-mark for the first time in four years ahead of the US sanctions on Iran. HSBC in its fourth quarter Global Economics outlook said there is now a growing risk that crude could touch $100 per barrel. Analysts believe that rise in the crude oil prices along with steep depreciation in the rupee might surely push inflation higher in coming months.

Steep FII outflows from equity and debt markets and volatility in equities have kept sentiments bearish for the rupee. The dollar index is hovering high as the US Fed continues to raise interest rates aggressively. While a 25 basis points hike in repo rate is a given, the market may be keenly awaiting other measures by the RBI to shore up rupee.