Mumbai - The formation of a non-BJP government in Karnataka, along with a persistent outflow of foreign funds from the country's equity and debt markets and high crude oil prices further weakened the Indian rupee on Monday.
Accordingly, the Indian rupee weakened by 12 paise against the US dollar to 68.12-13 on Monday, from its previous close at 68.01 per greenback.
Last week, it had weakened by 68 paise to close at 68.01 against the US dollar from its previous close of 67.33 per greenback.
"The US dollar continues to edge higher on the back of foreign fund outflows from the Indian bond and equity markets which is a part of larger sell-off seen in the EM market due to the rise in US interest rates," Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
According to Banerjee, persistent outflow of foreign funds from the Indian equity and bond markets has had an adverse impact on the rupee.
On Monday, provisional data with the stock exchanges showed that foreign institutional investors sold scrips worth Rs 166.15 crore. Foreign institutional investors had sold scrips worth Rs 1,496.79 crore during the trade week ended May 18.
"The Indian rupee is also underperforming its EM peers on the account of higher crude oil prices and domestic political uncertainties. To curb the free fall in the Indian rupee's value against the US dollar, the RBI has steeped-up its US dollar selling activities," Banerjee said.
Besides fund outflows, geo-political tensions in the Middle East and supply side constraints have led to a surge in global crude oil prices. The latest Brent crude price hovered around the $80 per barrel mark.
However, the price of the Indian basket of crude oils, composed of 70 per cent sour grade Oman and Dubai crudes and the rest by sweet grade Brent, has gone upwards of $72 a barrel in May, after rising to an average of $69.30 in April 2018.
It averaged $47.56 and $56.43 per barrel respectively during the last two financial years.
On May 18, the Finance Ministry estimated that the rise in oil prices may inflate India's import bill by around $25 billion to $50 billion. The surge has already pushed the cost of petrol in the national capital to Rs 75.32 per litre.
Banerjee predicted an immediate range for Indian rupee to be between Rs 66.70 and Rs 68.30 per US dollar.
"Over the past few days, calming of trade dispute between US and China and interest rate hike expectations from the Central Bankers in the developed economies has also played its part in the weakening of the Rupee," said Deepak Jasani, Head of Retail Research at HDFC Securities.
"The rupee is now close to its all time low of 68.91 made in Feb 2016 and we soon need reversal in the crude prices and USD value to avoid breaching that level."