As a result of the Russian gas supply crisis, oil prices spiked back up to over $101 per barrel, severely weakening the rupee to close to 79.90 against the dollar.
Even as investors awaited the most recent response to the world’s rising inflation from the top central bankers at the US Federal Reserve’s Jackson Hole Conference on Friday, the dollar fell from two-decade highs.
According to Bloomberg, the Indian rupee dropped from its previous closing price of 79.8150 to 79.8837 per dollar.
According to PTI, the rupee dropped 3 paisas to provisionally close at 79.89 against the US dollar.
The dollar was down almost 0.5 percent on the currency markets, to 136.62, including 0.4 percent against the euro and 0.5 percent against the yen.
However, the crisis in Russian gas supply, which was being driven by commodity bulls, caused Brent crude to climb back up to close to $102 per barrel, which put pressure on the domestic currency.
The benchmark crude has since risen by more than $10 from its recent lows.
India imports more than 80% of its oil requirements, and as crude prices rise, the demand for dollars from oil importers puts pressure on the national currency.
According to Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap, “oil is already above $100 per barrel and 10-year US yield has risen above 3.10 per cent, and both these factors are likely to increase selling pressure on central government bonds.”
Concerns about inflation increased as global oil prices rose, according to traders.
According to Jim Reid, a strategist at Deutsche Bank, the concern is that Europe’s energy situation will only continue to deteriorate.
This is raising concerns that for some nations, “peak inflation” may still be a ways off, he said. The worst stagflation we have seen in decades will force policymakers to make some unenviable decisions.