Rupee set to weaken beyond 80 per dollar due to rising crude prices: BofA

India’s rupee may extend declines to a record-low 81 per dollar by year-end due to rising prices of crude and other raw materials, according to Bank of America. 

The currency has already slumped more than 5% this year as Russia’s invasion of Ukraine sent Brent crude surging to almost $140 a barrel in March. The rally in energy prices has worsened India’s external finances as the nation relies on imports to meet about 80% of its oil requirements.   

The rupee has also been pummeled by outflows of about $27 billion from Indian stocks this year, and by strength in the dollar driven by Federal Reserve interest-rate hikes.

The rupee “has continued to depreciate beyond our expectation of a gradual trend weakness,” Abhay Gupta, a strategist at BofA Securities in Mumbai, wrote in a note to clients. “The fundamental outlook has deteriorated further primarily due to higher oil and other commodities.” 

Gupta’s new year-end prediction of 81 per dollar is more bearish than all 23 forecasts in a Bloomberg survey. 

The rupee has set a series of new all-time lows against the dollar in recent weeks, with its latest being 78.2888 on Wednesday. 

Still, the Reserve Bank of India’s reserve buffers and monetary policy tightening may help contain the prospect of an even larger depreciation, Gupta said.