By Prarthana Mitra
With global crude oil prices sliding significantly over the last month, the prices of petrol and diesel prices in India saw some vital correction recently, which further bolstered the rupee against the dollar.
The worst-performing monetary unit in Asia which reached a momentous 72 against the dollar in September, has revived due to falling crude prices. The effect has further extended to relaxing liquidity stress, debt assets and overseas interest in Indian equity.
Here’s how this happened
Between October 3 and November 21, brent crude prices decreased by 36.31%, from $86.29 to $63.3 per barrel. Saudi Arabia and other major oil producers had been holding back production of oil since 2017, but increased their production and export to ease demand and placate US President Donald Trump, according to a report in The New York Times.
At the same time, production in the US rose faster than expected, as exports from Libya and Venezuela also continued steadily. Furthermore, Trumps sanctions on Iran did not have huge impact on the latters oil production because Trump allowed its largest customers Japan, China, and India to continue buying oil from Tehran temporarily.
The prices of petrol and diesel in Delhi decreased concurrently with the global crude price, by 8.9% and 5.28% respectively. The price of Petrol, which was selling at Rs 83.85 per litre on October 3, was down to Rs 76.30 on November 21. Diesel which was marked at Rs 75.25 on October 3, was back to Rs 71.27 on November 21.
During the same period, the rupee, gaining 2.79% against the dollar, became stronger and stood at Rs 71.30 per dollar on November 21. A report by Bloomberg revealed that the rupee had become the third-best performer among emerging market currencies, after the Chilean peso and the Indonesian rupiah.
The whirlwind saga of the INR that’s been
According to the Economic Times, foreign investment in domestic assets has also picked up, owing to the 17 percent drop in crude prices this month. They have net invested Rs 10,523 crore so far, as per data from the National Securities Depository. Investors hope this slump will drive corporate profits and reduce concerns over a runaway current account deficit.
A cumulative rise in crude prices, widening trade deficit and liquidity stress has weighed heavily on the rupee in the last few months. The fall in oil prices will further reduce Indias fuel import bills while aiding companies importing heavily to reduce operational costs. The expected fall in trade deficit gives some further hope that the rupee will rise another 2-3% by the year-end.
Prarthana Mitra is a