Mumbai, May 16 (IANS): Uncertainty over the government formation in Karnataka, along with high global crude oil prices and consistent outflow of foreign funds from the domestic equity market weakened the Indian rupee to a 15-month low on Tuesday.
The Indian rupee went down by 56 paise to close at 68.08 against the US dollar from its previous close at 67.52 per greenback.
"Inspite of BJP winning the election in Karnataka, concerns about their ability to form the government there has affected sentiments in rupee," Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities told IANS.
Besides the state election results, Banerjee pointed out that even the high Indian bond yields due to worsening inflation outlook has weakened the Indian rupee. He predicted the rupee to be in a near term range of 67.70 to 68.50 on the spot market.
Lately, the Indian rupee has been one of the worst performing currencies in the EM (emerging markets) basket due to high crude oil cost.
Geo-political tensions in the Middle East and supply side constraints have led to a surge in global oil prices. The latest Brent crude price hovered around the $80 per barrel mark, whereas its cost was over $51 a barrel during the same period of 2017.
The price of the Indian basket of crude oils, composed of 70 per cent sour grade Oman and Dubai crudes and the rest by sweet grade Brent, has gone upwards of $70 a barrel last month.
According to Deloitte India's Senior Director and Senior Economist Richa Gupta, the rupee "is facing downside risks on account of crude price hike, concerns regarding fiscal deficit and current account deficit, and dollar strength."
"In the period ahead, these are the factors that may likely keep rupee to 67-70 levels. Generally, rupee depreciation can be expected to boost exports, all the more because in real terms, the rupee was over valued as compared to some of India's key export competitors," Gupta said.
"However if the outward shipments fail to take off at the desired levels and with imports bill inflating, continued depreciation may put further pressure on the twin deficits."