With oil prices on the ascent again, bets that tens of billions of dollars in fresh capital inflows would sustain a recovery in the Indian rupee have all but vanished.
A more than 20% jump in crude oil in two weeks has prompted analysts from Danske Bank AS and Ebury Partners Ltd. to predict fresh lows for the rupee against the dollar. A central bank-led policy blitz to attract foreign capital — estimated by Citigroup Inc. to fetch as much $80 billion — has at best proved to be fleeting in effect as the rupee has slid about 2% from a June high and is hovering near a record low.
What makes the Indian currency more vulnerable than some of its Asian peers is the country’s reliance on imported energy and its ripple effect on the broader economy. With the US-Iran conflict intensifying, concerns over an energy shock are back on traders’ radar, as a weaker rupee is likely to fan inflation, raise subsidy costs, squeeze corporate profit margins and widen the current account deficit.
