Rupee faces risk from rising oil prices

Oil price is continuing its march towards $100 a barrel for the first time in almost a year, creating new inflationary headaches for central bankers

With rising crude oil prices in the international market pushing up the demand for dollars, the Indian rupee has slumped to a record low of 83.2675 vis-à-vis the U.S. dollar. Going ahead much will depend on oil prices in global markets which are now hovering around the $95 per barrel mark.

Although the RBI has been releasing dollars in the market to prop up the rupee this has not been able to stem the slide of the Indian currency as the country imports around 85 per cent of its crude oil requirement for which immediate payments have to be made in dollars.

"The RBI will be there to defend the rupee with its ample stock of foreign exchange reserves and ensure that overall volatility is contained, but it cannot go beyond a point," said a foreign exchange expert of a private sector bank.

Foreign investments in the Indian stock markets have also helped to contain the volatility of the rupee but this is "hot money" that can exit suddenly and cannot be relied upon, an analyst said.