Rupee hits a new record low; India to keep buying Iran oil
RBI surprises analysts, holds rates
MUMBAI, Oct 6, (Agencies): India’s rupee breached 74 to the dollar for the first time ever on Friday as the country’s central bank surprised analysts by holding interest rates. Economists had expected the Reserve Bank of India (RBI) to hike its key rate as Asia’s third-largest economy grapples with a plummeting currency and soaring oil prices.
But the RBI said the benchmark repo rate - the level at which it lends to commercial banks - would remain at 6.50 percent. Forty out of 49 economists surveyed by Bloomberg News had predicted a rise of 25 basis points.
The hold followed two consecutive rate increases and came as the rupee touched a new record low of 74.10 against the greenback Friday.
The rupee has tanked 14 percent against the dollar this year as investors withdraw from emerging markets. The RBI raised rates in June and August in part to help shore up the currency, which started 2018 at 63.67 to the dollar.
Higher interest rates can attract greater foreign investment, helping to increase demand and subsequently the value of the country’s currency.
The rupee slump has widened India’s current account deficit, when the value of imports exceeds that of exports.
India is a massive net importer of oil, securing more than two-thirds of its needs from abroad.
High oil prices have been squeezing the rupee, making it less appealing to investors, analysts say. Prices recently soared to fresh four-year highs on expectations next month’s Iran sanctions will hit global output levels.
India’s economy grew at 8.2 percent in the first quarter of the 2018-19 financial year due to a boost in manufacturing and consumer demand, following a downturn blamed on a shock cash ban in 2016.
India, meanwhile, will buy 9 million barrels of Iranian oil in November, two industry sources said, indicating the world’s third-biggest oil importer will continue purchasing crude from the Islamic republic despite US sanctions coming into force on Nov 4.
“Refiners have placed November nominations to lift 1.25 million tonnes (about 9 million barrels) of oil from Iran,” one of the sources said.
Indian Oil Corp will lift 6 million barrels of Iranian oil and Mangalore Refinery and Petrochemicals Ltd 3 million barrels, the source told Reuters.
The United States plans to impose new sanctions targeting Iran’s oil sector on Nov 4 to try to stop the country’s involvement in conflicts in Syria and Iraq and bring Tehran to the negotiating table over its ballistic missile programme.
The sources declined to be identified as they were not authorised to speak to the media. Indian Oil and Mangalore Refinery did not immediately respond to a request for comment.
“India is continuing with its relationship with both its key energy partners Iran and the US,” a second source said.
A US government official said the Trump administration is “in the midst of an internal process” of considering waivers for countries that are reducing imports of Iranian crude. The official spoke on the condition of anonymity.
US Secretary of State Mike Pompeo said in India last month that the Trump administration would consider waivers for Iranian oil buyers such as India but they must eventually bring the imports to zero. Indian refiners imported around 10 million barrels of Iranian oil in October, and its November shipments are expected to be lower.
In the previous round of sanctions from 2012 to 2015, India continued to buy Iranian crude although it had to cut purchases significantly to protect its wider exposure to the US financial system.