As global crude prices stiffened due to speculation of significant oil producers reducing supply and with the currency strengthening itself globally amidst the Federal Reserve’s talk of a faster pace of bond tapering, there was a marginal slip in the value of the rupee against the US dollar.
The partially convertible rupee closed previously at 74.9050, and this time, it opened at 75.0500 per US dollar. There are rumors that the interest rates in the US may be headed north sooner than expected, and they might reduce the appeal of the emerging market currencies such as the Indian rupee, which could lead to potential capital outflows from India.
US Fed Chair Jerome Powell mentioned earlier this week that it might be time to drop the word “transitory” while describing inflationary pressures in the world’s largest economy. It might be appropriate to accelerate the process of rolling back quantitatively easing.
Though Fed’s words did not impact the rupee on Wednesday, currency traders were adamant that the domestic currency is down the path of depreciation at a stable pace.
A dealer with a state-owned bank (on condition of anonymity) said, “YESTERDAY(Wednesday) there was a big stock rally and investors thought that the close to 1% decline in rupee since last week was overdone, from a broad perspective, Fed cannot be ignored.
Powell made his comments even after the concerns on Omicron surfaced, so; clearly, they are on track to hike rates. The dollar index reflects that, and there is also the recovery in oil.” Furthermore, WTI (West Texas Intermediate) crude futures gained 0.7% to $66.05 or 48 cents, a barrel by 0140 GMT Thursday.
At 69.35, Brent Crude Futures were up by 48 cents or 0.7%. The dollar index, which is used to measure the US currency against six major competitor currencies, strengthened from 95.95 on Wednesday to 96.07 on Thursday.
Being the third-largest importer and consumer of oil, India was majorly affected by the hardening of oil prices, and it also posed high risks to inflation. WPI (Wholesale price-based inflation) in January was at 12.96%, even though the food prices hardened.
The WPI has eased for the second consecutive month, inflation in December 2021 being at 13.56%. Furthermore, the WPI inflation, for the tenth successive month from April 2021, remained in double digits.
In a statement, the COMMERCE AND INDUSTRY MINISTRY said, “The high rate of inflation in January 2022 is primarily due to rise in prices of mineral oils, crude petroleum, natural gas, basic metals, chemicals, and chemical products, food articles, etc. as compared the corresponding month of the previous year.”
In January, Inflation in food articles spiked to 10.33% from 9.56% in December 2021. Vegetable price rates also jumped from 31.56% to 38.45%. In food articles, pulses, cereals, and paddy witnessed a consecutive monthly price rise while egg, meat, and fish saw inflation at 9.85%. Inflation in potato and onion was at (-)14.45% and (-)15.98%, respectively.
Meanwhile, inflation in manufactured items was at 9.42% in January against 10.62% in December. The key repo rate, a rate at which Reserve Bank lends short-term money to banks, was kept unchanged last week for the 10th time in a row at 4% to support the growth and manage inflationary pressure.
Geopolitical crisis between Ukraine and Russia affect Market Volatility
Due to rising tensions between UKRAINE AND RUSSIA, the BSE and NSE crashed around 3% on Monday, just like all their global peers. The S&P BSE Sensex hit 1,747.08 points (3.00 percent) to settle at 56,405.84, while the Nifty 50 fell 531.95 points (3.06 percent) to end at 16,842.80.
Earlier in the day, both the topline indices had opened over 2 percent lower and slipped around 3.2 percent in the intraday deals, with the 30-share BSE benchmark hitting a low of 56,295.70 and the broader Nifty touching 16,809.65.
Published By – Vanshu Mehra
Edited By – Subbuthai Padma
