New Delhi: The rupee experienced its highest monthly depreciation due to a stronger US dollar and a substantial surge in crude oil prices.

The rupee fell by 29 paise to end at Rs 83.04 against the dollar on Tuesday, according to data from Bloomberg. Similarly, it had fallen by 33 paise on August 2.

“This depreciation can be attributed to the overall strength of the US dollar and a significant increase in crude oil prices, which surged by more than 10% to reach $85 per barrel,” Jateen Trivedi, VP research analyst, LKP Securities, told the Financial Express.

Crude oil prices have touched a 10-month high as Russia and Saudi Arabia have extended supply cuts to the end of the year.

When the rupee depreciates, its purchasing power in other countries decreases. Consequently, this leads to higher costs for imported goods and services, making them more expensive for consumers in the domestic market.

India imports over 80% of its crude oil, and the falling rupee's biggest impact is on inflation.

On Tuesday, September 5, the Indian rupee declined by 0.4%, while the dollar index rose by the same quantum. Apart from anticipated dollar outflows, analysts told the business daily that the rupee's drop could be attributed to the ongoing weakness observed in Asian currencies.

“China’s slow performance is prompting new concerns about the country’s economic growth. The Caixin service PMI data from the Chinese economy, issued on Tuesday, was lower than the previous month, thereby putting pressure on Asian currency markets,” Nirpendra Yadav, senior commodity research analyst, Swastika Investmart, told FE.

“The rise in the dollar index indicates expectations of an impending interest rate hike, and this is impacting currency markets, including the rupee,” Trivedi told the newspaper.

Analysts said that the movement of the rupee will be influenced by Federal Reserve’s meeting, which is scheduled for later this month.

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.