Re slips, $ dearer as oil boils and FIIs fumble

Wed, May 14 12:45 AM

Exporters could rejoice and foreign travellers may find it a tad worrying, but the rupee is on the weak path again, thanks to a surging demand for dollars in the wake of a growing oil import bill, while foreign institutional investors are taking money away from the domestic system. The currency fell to a 13-month low of Rs.

42.10 to the US dollar on Tuesday, and analysts see a further slide ahead. Foreign exchange dealers said the rupee fell to an intra-day low of Rs 42.22 to a dollar following dollar buying by oil refiners.

The rupee was strong on the back of an "India story" that brought in a flood of dollars, but industrial growth is slowing, crude price has touched new highs, telling on the trade deficit which sends signals to those who buy and sell dollars. The trade deficit for the 2007-08 fiscal year widened by over 35 per cent to $80.39 billion against last year's $ 9.32 billion, largely on account of a rising oil bill.

Oil imports during the year totalled $ 77.03 billion, zooming 35.28 per cent from the previous year's $ 56.94 billion - in percentage terms the yawn was equal to the overall trade deficit. Non-oil imports grew by 23.4 per cent to $158.9 billion in 2007-08, while exports surged 23 per cent during the year - just about levelling with non-oil imports.

"The rise in crude oil prices is one of the contributing factors for the slide in rupee in recent days," said Delhi-based economist T.K.Bhaumik. The country imports about 70 per cent of its oil needs, and the government faces a political headache in passing on the rise in crude prices, which are managed through a mix of price controls, subsidies and bonds that the government issues to state-owned oil marketing companies.

Raising fuel prices is a challenge in an election year, with inflation already around 7 per cent on the back of a global surge in food prices. The basket of crude oil that Indian refiners buy has breached the worrisome $115 a barrel mark.

"The sentiment has changed in recent weeks because of data including inflation where the news has consistently been not good," Jamal Mecklai of Mecklai Financial said. Analysts say there has been a significant rise net outflow of dollars from India in the last ten days.

"The recent depreciation of the rupee against the dollar has been primarily due to the oil-importers-led dollar demand," said Yashika Singh, Head, Economic Analysis Group, Dun and Bradstreet.

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