Falling crude prices could strengthen Indian currency

A sustained decline in international crude oil prices could offer support to the Indian rupee by reducing the country’s import bill, easing pressure on the current account deficit and lowering demand for US dollars from oil-importing companies.

The trend has already begun to reflect in currency markets. Brent crude fell from around $118 per barrel on October 30 to approximately $90 on November 10, marking a decline of about 24 per cent. The easing of geopolitical concerns surrounding the US-Iran conflict has contributed to the retreat in oil prices.

The rupee strengthened to around Rs 93.69 against the US dollar on November 11, reaching its strongest level since April. The currency has also benefited from renewed foreign investment in Indian equities.

According to the Global Trade Research Initiative (GTRI), foreign portfolio investors purchased a net Rs 53,739 crore worth of Indian equities between November 2 and 9, reversing net outflows of Rs 34,843 crore recorded in October.

GTRI expects the rupee could move towards the Rs 92-93 range against the dollar over the coming months if lower crude prices and foreign investment inflows persist.

Cheaper oil could also help moderate domestic inflation by reducing transportation, manufacturing and energy costs. It may ease pressure on India’s current account deficit and provide the Reserve Bank of India with greater flexibility in managing monetary and currency stability.

However, the rupee’s recovery is not guaranteed. A stronger US dollar, rising American Treasury yields, renewed geopolitical tensions or a reversal in foreign investor flows could limit its gains.

For India, the combination of lower crude prices and returning foreign investment offers an opportunity to ease pressure on the currency after a difficult year. Whether this translates into a sustained recovery will depend on how long the favourable global conditions continue.