High crude oil prices will lead to higher inflation and also worsen India's current account deficit


The USDINR pair made a flat opening at 73.68 levels and traded in the range of 73.61-73.84 with an upside bias. The pair finally closed at its day's high of 73.84 levels. The RBI set the reference rate at 73.6567. The Indian rupee was down against the dollar today because Brent crude oil November futures rose beyond the $79-a-barrel-mark, dampening investors' sentiment for the Indian rupee.

Brent crude oil prices moved near to the three-year high due to global supply disruptions, which have forced energy companies to pull large amounts of crude oil out of inventories. High crude oil prices will lead to higher inflation and also worsen India's current account deficit by increasing the import bill and, hence, weigh on the Indian rupee. There was a sharp rise in the yield on the 10-year benchmark US Treasury note after the US Federal Reserve last week stated that it would start tapering its massive $120 bln bond purchases by the end of this year which also weighed on the sentiment for the rupee.

Investors now await a series of speeches from US Fed policymakers this week for cues on the central bank’s plan on hiking interest rates. Fed Chair Jerome Powell will also testify this week before Congress on the Fed's policy response to the COVID pandemic. On an annualized basis, a premium on the one-year, exact period dollar/rupee contract rose to 4.38% as against 4.37% of the previous close. The 10-year G-Sec benchmark 06.10 GS 2031 closed the day 3 bps higher at 6.210% levels.

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