Rupee Approaches 96 Against Dollar, Retail Inflation 4.38% in June, Trade Deficit at 5-Month High
New Delhi: The Indian rupee is back in the doldrums, with reports predicting its weakening towards 96 against the US dollar amid the return of fighting in West Asia, where the US has begun strikes against Iran again, breaking the fragile ceasefire.
The rupee was also the worst-performing Asian currency a day ago on July 13, after it depreciated 0.31% to settle at a month's low of 95.62 per US dollar. It also touched an intraday low of 95.85 on July 13.
While the rise in crude oil prices – which climbed early today as fighting intensified, with Brent crude rising to just over $84 a barrel after soaring nearly 10% a day ago – is to blame for the immediate downslide of the rupee, its problems had begun much before the US and Israel attacked Iran on February 28 this year.
“As a major oil-importing country, the rupee came under pressure and emerged as the weakest performer among Asian currencies,” said Dilip Parmar, senior research analyst, HDFC Securities, told Business Standard.
The rupee had recently recovered to near 94 thanks to measures announced by the Reserve Bank of India, before this current slide. Over the past year, it has weakened 10.27%.
Retail inflation hikes
Meanwhile, India's retail inflation accelerated to 4.38% in June, government data shows. This is the first time that retail inflation has crossed 4% in the new Consumer Price Index calculation which was released in February and will consider 2024 as its base year.
As a Reuters report notes, this breaches the central bank's 4% target for the first time in 17 months and sets the stage for an interest rate hiking cycle.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, Mumbai, told the news agency that much of the increase is being led by higher food prices and partial impact of the pass through of the fuel price hike. "We continue to expect 50 bps of rate hike in H2 FY27," Bhardwaj said.
A Times of India report also blames the fuel price hikes, noting that June bore the full brunt of multiple retail fuel price hikes, as personal transportation costs rose 7.4% from 3.1% in May.
Trade deficit widens
India's merchandise trade deficit has widened to a five-month high of $30.43 billion in June, government data shows.
Mint blames the sharp rise in imports on higher bills for crude oil, electronics and chemicals purchases amid the West Asia war.
Merchandise exports rose 15.5% year-on-year to $40.41 billion in June from $34.98 billion a year earlier, while imports jumped 31% to $70.84 billion from $54.08 billion, the commerce ministry's data showed.
Times of India reports that there was some comfort from bullion as gold imports rose 7% to stay just below $2 billion, while silver was down 74% to $60 million, as global prices cooled and the impact of higher duty played out. Precious stones, vegetable oil, chemicals and project goods were, however, among the handful of prominent sectors that saw lower imports during June, the report says.
"While the situation in West Asia and its impact on crude oil prices remains a monitorable, ICRA expects the current account deficit to widen to at least 1.0% of GDP in FY2027,” said Aditi Nayar, chief economist at ratings agency ICRA, to TOI.
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