The Indian currency has been battered over the last few months, losing about 14 percent of its value against the US dollar off the back of soaring US interest rates and rising oil prices.
But the rupee has benefited in recent weeks as the price of oil tumbled, dropping nearly 7 percent of value in the last three days alone.
While the price of oil steadied somewhat today, the Indian rupee has still continued to perform in a more positive tone against the US dollar.
The Indian rupee is trading at 71.98, its best level against the American greenback since September and a staggering improvement on the all-time high of 74 recorded just last month.
The price of oil was inching up again this afternoon, having halted a record losing streak.
US oil futures steadied at $56.35 a barrel, after a slight bounce overnight.
Brent was up 0.4 percent at $66.42 a barrel.
Navneet Damani, vice-president of commodity research at Motilal Oswal Financial Services, told Quartz India: “In the past few weeks crude oil has fallen nearly 25 percent from the highs seen earlier this year.
“That has been the most important factor that has led to rupee gaining some strength.
“If there is a further fall in crude oil prices, even by 4 to 5 percent, then the rupee will appreciate.”
The Times of India reported DBS Bank economist Radhika Rao as saying: “Indian crude prices in November are 10 percent below October’s average and down 16 percent from the year’s high.
“The Indian rupee, whilst remaining the regional underperformed, has trimmed year-to-date losses against the dollar to 12.5 percent from 14 to 15 percent earlier.”
This week saw India’s retail inflation drop to 3.31 percent on a year-on-year basis, marking the slowest pace in 13 months.
The rate, which includes food and energy prices, remains below the Reserve Bank of India’s (RBI) medium-term target of 4 percent for a third straight month.
Analysts believe this could give the central bank wiggle room to allow easier lending policies, potentially allowing breathing space for the rupee.
The Reserve Bank of India shocked financial analysts as it went against predictions by holding interest rates at the start of last month.
The RBI’s monetary policy committee (MPC) left the repo rate unchanged at 6.50 percent, with five out of six panel members voting to hold the rate
Defending the decision, the bank said it was acting “to further strengthen domestic macroeconomic fundamentals”.
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