The rupee slumped to an all-time low as a resurgence in crude oil prices and the emerging market selloff took a toll on the currency, reports said.
The Indian currency weakened to 68.9100 per US dollar Thursday, past its previous record of 68.8650 reached in November 2016.
Brent crude’s sustained gains since the middle of 2017 has led to a widening of India’s current-account and fiscal deficits at a time when global funds have become selective about their emerging market investments. India imports about two-thirds of its fuel needs, making it one of the most vulnerable in the region to advances in oil prices.
“Given India’s current account deficit, there is a need to fund it, but we are on track for a fifth consecutive month of bond outflows and the equity market has also been experiencing outflows,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. Without a turnaround, the rupee may weaken past 70 per dollar, he said.
Foreign funds have reduced holdings of rupee-denominated government and corporate bonds by $6.1 billion, and pulled $785 million from equities since the beginning of 2018.
The withdrawals have helped made the rupee the worst performer in Asia.
India’s assets are caught in a vicious downward spiral, where capital outflows hurt the currency, which then further deter investments. Concerns about the government’s debt sales and the impact rising crude prices have on inflation have led to a bond selloff at time when investors are also pulling out of emerging markets because of higher Treasury yields.
Every $10 rise in the oil price worsens India’s current-account balance by 0.4 percent of GDP, and pushes up inflation by 30-40 basis points, according to Nomura Holdings Inc.
Crude has gained this week as the US puts pressure on its allies to halt purchases of Iranian supplies.