Softer oil paints a rosy picture for rupee, won

Among the emerging market currencies, Indian rupee and Korean won will gain from the fall in crude and coal prices, according to a Morgan Stanley report. The rupee has slipped with the dollar rising and other EM currencies softening. Both India and Korea are major net importers of energy commodities. For India, net crude import is 6.4 per cent of the GDP and for Korea it’s 7.5 per cent (see table). Every 10 per cent fall in crude prices would mean 0.6 per cent lower trade deficit as a percentage of GDP. In 2013-14, India’s trade deficit to GDP was 7 per cent.

The currencies that would take the maximum hit are rouble, Columbian peso and Mexican peso, with crude production accounting for 14.3 per cent, 7.6 per cent and 2.7 per cent of their GDPs, respectively. Although China, Brazil, Indonesia and South Africa will benefit from lower crude prices, the gain will be reduced as these companies are exporters of coal, iron ore and food commodities whose prices are correcting.