Mar 7, 2022
By: bhakti.makwana@timesinternet.in
Credit: BCCL
The Indian rupee hit a lifetime low of 76.96 per dollar as a surge in crude oil prices threatened to surge imported inflation and widen trade deficits.
Credit: BCCL
Crude oil prices climbed $130 per barrel as compared to $91 per barrel a month back, surging over 40 percent in the last one month.
Credit: BCCL
Oil prices rose quickly after the US and its European allies said that they plan to ban Russian oil altogether.
Credit: BCCL
The country imports 80 percent of its oil needs and any rise in oil price increases the import bill, which eventually widens the gap between revenue and expenditure known as fiscal deficit.
Credit: BCCL
Further, a higher current account deficit puts pressure on the domestic currency.
Credit: BCCL
Oil reached its highest since 2008 in US trading, and there seems to be no sign of a cooling-off until the situation between Russia and Ukraine settles.
Credit: BCCL
The current scenario has also led to a stock market crash as investors are selling their investments in the equity market.
Credit: BCCL
Foreign institutional investors (FIIs), who are the biggest sellers in the market are expected to sell more as the US Federal Reserve begins to tighten its policy through rate hikes.
Credit: BCCL
“The Russian invasion of Ukraine and likely lower exports of Russian crude oil will keep crude oil prices elevated for a protracted period. We estimate the Indian economy to incur an additional $70 billion burden (1.9 percent of GDP) versus FY2022 levels at an average crude price of US$120 per barrel,” said analysts at Kotak Institutional Equities.
Credit: BCCL
Analysts also see meaningful upside risks to inflation and downside risks to corporate profits through increased pressure on margins and volumes both.
Credit: BCCL