India rupee to rise despite higher oil prices, widening trade deficit

The Indian rupee is projected to begin marginally higher on Monday, with expectations of central bank assistance countering concerns over rising crude oil prices and a growing trade gap. Non-deliverable futures suggest the rupee would start at roughly 83.10 per US dollar, up from 83.1850 in the previous session.

The presence of the Reserve Bank of India would make it difficult for the dollar to reach its all-time high, according to Ritesh Bhansali, director at Mecklai Financial.

The rupee’s rise at the open is likely to be a reaction to Friday’s decline, according to a foreign currency dealer at a private bank. On Monday, the rupee is expected to trade between 83.10 and 83.25.

The rupee sold off in the last half hour of Friday’s session, which traders attributed to the trade deficit data and position adjustment heading into the weekend.

India’s merchandise trade deficit in August was $24.16 billion, higher than the expected $21 billion.

“Trade deficit has been rising for the last few months, led by wider net non-oil non-gold imports,” IDFC First Bank said in a note.

“This reflects domestic demand conditions holding up and weakness in exports due to external demand weakness. This combination is likely to maintain upward pressure on trade deficit.”

Rising oil prices are an additional source of risk for India’s trade deficit.

Brent crude, hovering near year-to-date highs, is up 8.5% this month and has jumped 26% this quarter.

This week, investors will be keeping a keen eye on central bank decisions, beginning with the US Federal Reserve on Wednesday, followed by the Bank of England and Bank of Japan.

The Fed is widely expected to keep rates unchanged and the focus will be on the growth, inflation and interest rate forecasts.