Two sides of a coin

The sharp fall in the rupee is likely to hit oil imports and add to inflationary pressures, but exporters hope to benefit from the weakening of the Indian currency when they enter into fresh contracts.

The rupee has depreciated nearly 10 per cent in the last two months.

State-owned oil firms are worried as the country imports 80 per cent of its crude requirement. For every rupee depreciation, the under-recovery increases by around Rs 9,000 crore. This will put pressure on the finances of oil firms.

In the first quarter of this fiscal, the country imported fuel worth $46.15 billion. High oil import bill is a major cause of worry.

The country will not be able to take advantage of the fall in global crude prices because of the rupee depreciation. The oil burden will affect inflation.

A weak rupee would provide competitive advantage to exporters to the newer markets such as Africa, Latin America and South-East Asia when they entered into new contracts.

Importers cowered in fear as the rupee slumped to a 28-month low at 49.58 against the dollar, which rose to a seven-month high against major currencies as an aversion to risk swept across the world’s financial markets. Importers are rushing in to buy dollars, the rupee were under pressure throughout the session. The rupee had been at its weakest at 49.78 on May 14, 2009. It had registered the biggest fall of 152 paisa, or over 3 per cent, on May 18, 2009. .

The rupee went into a free fall as importers scrambled to scoop up dollars and the RBI made a less than half-hearted intervention attempt to prop up the tumbling currency.The rupee’s close marks a steep fall of 124 paisa from Wednesday’s close. This is the biggest single-session fall in nearly two years.Wary forex experts aver that if the current global uncertainty continues (igniting a further dollar rally) and there is more demand for the greenback from importers, the rupee could easily breach the 50-mark. Few pessimists are pointing out that the unit may cross the 53-mark as well.Dealing room circles said with risk aversion sweeping across markets because of worries over the global economy, investors were betting in safe haven assets such as the dollar.With equities witnessing savage cuts and foreign institutional investors selling, dollar supplies dried up.This resulted in the rupee resuming sharply lower at 48.79 a dollar from the overnight close of 48.34.

Two sides of a coin

 The sharp fall in the rupee is likely to hit oil imports and add to inflationary pressures, but exporters hope to benefit from the weakening of the Indian currency when they enter into fresh contracts.

The rupee has depreciated nearly 10 per cent in the last two months.

State-owned oil firms are worried as the country imports 80 per cent of its crude requirement. For every rupee depreciation, the under-recovery increases by around Rs 9,000 crore. This will put pressure on the finances of oil firms.

In the first quarter of this fiscal, the country imported fuel worth $46.15 billion. High oil import bill is a major cause of worry.

The country will not be able to take advantage of the fall in global crude prices because of the rupee depreciation. The oil burden will affect inflation.

A weak rupee would provide competitive advantage to exporters to the newer markets such as Africa, Latin America and South-East Asia when they entered into new contracts.