Rupee Tumbles to Two-Month Low on Oil Price Shock

The Indian rupee touched a two-month low, falling below 96 against the US dollar on Tuesday. This sharp decline was triggered by heightened concerns in energy markets due to surging crude oil prices. Although the Reserve Bank of India intervened, providing some recovery, the rupee's weakness persists.

Crude oil and related products now constitute nearly a quarter of India's total imports. The price of the Indian crude basket saw a significant jump from an average of $69 a barrel in February to $116 by September 29. This dependence on oil prices has contributed to a longer-term decline, with the rupee depreciating 6.49% against the dollar since January.

Furthermore, the rupee's depreciation is not isolated to the dollar; it has also lost ground against other major currencies, including the Japanese yen, pound sterling, and the euro. Its weakness is evident even against a trade-weighted basket of 40 partner currencies, both in nominal and inflation-adjusted terms. Previous efforts by the central bank to strengthen the rupee have ultimately proven temporary.