The Narendra Modi Government is up against its first major problem. The rising tension in Iraq has hit the rupee and a continuing crude oil price surge can impact fiscal and trade deficits, slowing the economy.

The Government is worried about the delayed monsoon and is preparing contingency plans even as it readies to table the Budget next month.

Brent crude, rising for a fourth straight session, has risen to a near nine-month high $113 a barrel. Brent crude could hit $116 a barrel if the Iraq conflict heightens.

As the uncertain situation in Iraq led to a scramble for dollars, the rupee withered and remained Asia's worst performing currency dropping 1.5 per cent in five days.

On Monday, the currency slipped below the 60-mark against the dollar and closed lower by 39 paise at a six-week low of 60.16. During intra-day, it plunged to a low of 60.23.

Alongside dollar, gold turned a haven. The yellow metal gaining for the sixth straight day to touch a three-week high indicated a move to stock up on gold. Globally, gold rose 0.5 per cent to $1,282.98 an ounce, the highest level since May 27, before paring gains at $1,276.

At home, the futures rose to above ₹27,000/10 gram levels as speculators built positions. Spot prices, continuing their rising streak for the sixth session in a row, regained the ₹28,000-mark by surging ₹240.

(This article was published on June 16, 2014)
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