Economists at Société Générale have analyzed the potential risks for the Indian Rupee (INR) in relation to higher oil prices. They have outlined three different scenarios to assess the impact on the INR.
- The first scenario is the most bearish one, where the US Dollar strengthens by 5% and oil prices rally to $110 per barrel. In this case, the USD/INR exchange rate could breach the 84 level by the end of the year.
2. The second scenario considers a flat Dollar or flat oil prices. If the Dollar remains stable or if oil prices do not experience significant changes, the USD/INR exchange rate would likely stay around 83.50. This level has been the resistance point since October last year.
3. According to ForExim forecasts, the most probable outcome is for both oil prices and the Dollar to remain relatively stable until the end of the year. In this scenario, the USD/INR exchange rate would trade around the 83 level.
Although this view seems likely, it’s worth noting that there are renewed upside risks to oil prices.
Consequently, taking an outright short position on USD/INR may not be favorable.
It is important to understand the implications of higher oil prices on the Indian Rupee. The INR is vulnerable to the combination of a stronger Dollar and rising oil prices. A stronger Dollar makes imports more expensive, including oil, which is a significant import for India. As a result, higher oil prices put pressure on the INR, leading to a potential depreciation in its value.
In conclusion, while the most probable scenario is for the USD/INR exchange rate to trade around the 83 level due to stable oil prices and the Dollar, there are potential risks to consider. Higher oil prices could impact the INR, and it’s important to monitor these factors to assess any potential changes in the exchange rate.