DNA Money Edit: Rupee may slip below 70/dollar soon

Rupee is all set to fall below 70 per US dollar. A day after the successful dollar-rupee swap auction, the second in as many months, the rupee is looking a tad fragile again. The rising crude and the subsequent fear of inflation creeping back have cast a shadow on the rupee. Through the auction, Reserve Bank of India (RBI) had offered to buy $5 billion from banks to improve rupee liquidity during the election season, but received an overwhelming response with bids worth $18.65 billion.

The spurt in crude price has left the rupee on a roller-coaster. On Wednesday, it slipped further to 69.98 a dollar, but regained some lost ground by the close. Brent crude futures dropped a little, but are still hovering over $74 a barrel. Crude oil prices for spot delivery have already hit a six-month high after the US said it would end all exemptions for sanctions against Iran, asking countries such as India and China to halt oil imports from Tehran from May or face punitive action from Washington.

Any further increase in crude oil prices to over $75 per barrel will put pressure on India's exchequer. A $10 a barrel increase in oil prices impacts India's current account deficit by around $15 billion (50 basis points of GDP), according to Kotak Institutional Equities. That will, in turn, put more pressure on the rupee.