Rupee to hover around 75/dollar; crude basket at $35/barrel in FY21: RBI

The Reserve Bank on Thursday said that it expects the value of the rupee to hover around Rs 75 to a dollar and Indian crude basket to about $35 per barrel during 2020-21.

The rupee came under intensified and sustained depreciation pressures from mid-January, reflecting a generalised weakening of emerging market currencies amid flights to safety, RBI said in its Monetary Policy Report released during the day.

Taking into account the sizable two-way movements in the nominal exchange rate during October-December 2019, RBI expects the value of Indian rupee to be around Rs 75 to a dollar. The nominal exchange rate (INR vis--vis US dollar) exhibited sizable two-way movements during October-December 2019. The INR came under intensified and sustained depreciation pressures beginning mid-January, reflecting a generalised weakening of emerging market currencies amidst flights to safety.

Accordingly, the baseline assumes an average of Rs 75 per US dollar to reflect these recent developments, said the RBI report.

The developments comes as Rupee recovered from record low levels to settle 6 paise higher at 76.28 against the US dollar tracking gains in equity markets and foreign fund inflows. The local unit had settled at an all-time low of 76.34 against the greenback on Wednesday. Forex traders said the rupee traded in a narrow range as gains in domestic equities supported the local unit amid lingering concerns over coronavirus outbreak in the country.

As regards the crude oil prices, the report said given the current demand-supply assessment, the baseline scenario assumes crude oil prices (Indian basket) to average around $35 per barrel during 2020-21.

Observing that the international crude oil prices (Indian basket) have fluctuated in a wide range since October 2019, the report said these prices initially increased during late December 2019 and early January 2020 to around $70 per barrel, triggered by US-Iran tensions. However, the prices subsequently softened to reach USD 51 by early March in anticipation of lower global demand following the outbreak of COVID-19 and its rapid geographical spread.

Brent prices crashed to $32 on March 9, 2020 following Saudi Arabia's decision to cut prices and increase production over the failure to reach an agreement with Russia on production cuts.

Brent fell further to $23 on March 30, 2020 while US crude prices dipped briefly below USD 20. Brent rebounded to USD 34 per barrel on April 3, the report said.