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

Mumbai: The Indian rupee could trade firmly below ’92 per dollar if the US-Israel war on Iran is prolonged. Rising oil prices and its impact on the fiscal deficit could also have a 0.2% to 0.4% impact on inflation, Bank of Baroda economists said in a webinar. Economists expect a 0.5% impact on India’s GDP due to higher crude prices assuming that there is a 10% rise in the commodity’s prices.

“It all depends on how long this war will last. If it is long drawn, there will be an impact on growth because of issues linked to supply, then there will also be an impact on the external trade and exports,” said Madan Sabnavis, chief economist at Bank of Baroda.

The bank still expects the rupee to trade in the Rs 91 per dollar to Rs 92 per dollar band. 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 forwards market. It had sunk to a record low of 92.30/$1 on Wednesday due to heightened pressures from geopolitical crisis. For India, which imports more than 89% of its crude, the supply disruption could impact the financial markets and real economy, as 60% of India’s crude passes through the Gulf of Hormuz.