Surging crude puts pressure on rupee

Rising crude oil prices on Monday pushed rupee to a seven-week low of 45.3 against the dollar—16 paise below its previous close. A weaker rupee and higher oil prices heighten inflationary pressures and increase prospects for a rate hike. While traditionally higher interest rates provide support to the rupee, emerging markets on Monday saw their currencies fall versus the dollar on fears of interest rate tightening. Dealers said the overwhelming concern was that central banks may raise interest rates to combat inflation and in the bargain, trigger selling by foreign institutional investors. In the past, a strong rupee has helped cushion rising commodity prices. However, in recent weeks, the rupee has been under pressure because of weak market sentiments. FIIs have sold stocks worth $978 million since January 5. Forex dealers said that rupee was also under pressure because of a stronger dollar.