Rupee likely to trade below 92/$ in case of prolonged war: BoB

MUMBAI: If the US-Israeli war over Iran drags on, the Indian rupee could trade firmly below ’92’ against the dollar. Rising oil prices and its impact on the fiscal deficit could also impact inflation by 0.2% to 0.4%, Bank of Baroda economists said in a webinar. Economists expect higher crude prices to impact India’s GDP by 0.5%, assuming a 10% rise in commodity prices.

“It all depends on how long this war lasts. If it drags on, supply-side issues will affect growth, then external trade and exports,” said Madan Sabnavis, chief economist at Bank of Baroda.

Banks still peg the rupee at Rs. 91 to Rs. Expect to trade in a band of 92 per dollar.

On Friday, the rupee ended at 91.74/$1, down 14 paise from its previous close of 91.60/$1, despite strong intervention by the Reserve Bank of India in both the spot market as well as the offshore non-deliverable forward market. It sank to a record low of 92.30/$1 on Wednesday due to increased pressure from the geopolitical crisis. For India, which imports more than 89% of its crude, supply disruptions could affect financial markets and the real economy, as 60% of India’s crude passes through the Gulf of Hormuz.