Rupee Movement Against Dollar: The Indian rupee suffered one of its sharpest single‑day falls in recent months on Friday, sliding nearly a rupee to hit a fresh lifetime low of 94.85 against the US dollar, as a potent mix of surging oil costs, sustained foreign outflows, rising bond yields and geopolitical stress battered sentiment. The domestic currency closed at 94.82 per dollar on Friday against Wednesday’s close of 93.97 per dollar. (Thursday was a market holiday)
The fall capped a bruising week for domestic financial markets, with equities extending losses for a fifth consecutive week and bond yields touching multi‑month highs. Since the escalation of the West Asia conflict, the rupee has depreciated nearly 4 per cent and fallen 5.1 per cent this quarter, making it one of the worst‑performing emerging‑market currencies in recent weeks. Currency traders said the move was not triggered by a single event, but rather by multiple pressure points converging at once.
Oil shock hits India’s import bill
At the heart of Friday’s sharp depreciation lies a worsening energy shock. While global crude benchmarks like Brent were trading around USD 107 per barrel, India’s actual procurement cost has climbed far higher due to supply disruptions and route constraints in the Gulf. “The oil price may look like a counter‑estimate, the price that buyers are paying is USD 147,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.
“If we are buying oil through the Gulf, the price is USD 147. So obviously, we are paying USD 47 more than the Brent price.” Bhansali pointed out that India is effectively paying around USD 147 per barrel, nearly USD 40 more than Brent’s current price of USD 107 per barrel, as sellers in the region are reluctant to offer supplies amid geopolitical risk premiums. “Buying oil from the Gulf right now is proving expensive for India as there isn’t much selling from the exporter’s end,” he noted.
Beyond crude prices, logistics constraints are worsening India’s dollar demand. Bhansali flagged delays in gas shipments due to disruptions in the Strait of Hormuz, a critical transit point for energy exports. “The time taken to get gas is also longer. If tankers are coming rarely from the Strait of Hormuz, then we have to use the other route, which is Argentina,” he said.
“Through that route it takes longer for gas to arrive, and logistics lines are also under stress.” These delays translate directly into higher spot dollar buying by oil marketing companies and gas importers, adding near‑term pressure on the currency.
Fiscal worries compound currency stress
Currency markets have also reacted to signs of fiscal strain. The government’s decision to cut excise duty on petrol and diesel has raised concerns about revenue slippage.
“Another reason is that the government has reduced excise duty on petrol and diesel, which is likely to have an impact of Rs 1.5 lakh crore on the government’s exchequer,” Bhansali said. “Not immediately, but next year.” That concern has fed into the bond market, with the 10‑year government bond yield jumping to around 6.94 per cent, its highest level since August 2024. A falling currency combined with rising yields signals capital fleeing both equity and debt markets.
Foreign outflows hit extremes
Perhaps the most persistent drag on the rupee has been foreign capital flight. Data shows that foreign ownership has slipped to a 15.5‑year low, with cumulative outflows of nearly USD 19 billion.
“This month alone, outflows have gone up to about USD 13.4 billion as of around March 24,” Bhansali said. “There are no inflows, and maximum outflows are happening currently. People are very rarely investing in India. Mostly, people are taking money out of the country.” He noted that stake sales increasingly resemble exits rather than portfolio rebalancing, reflecting a loss of conviction amid global uncertainty.
Money pivots to the dollar, not other EMs
Unlike earlier phases when capital rotated into other emerging markets, current flows are overwhelmingly favouring US assets. “One month ago, I would have said it was going towards South Korea where AI and other assets were there,” Bhansali said. “But recently, it’s more into the dollar assets instead of other emerging market assets.”
The reason, he said, is uncertainty. With geopolitical risks in West Asia unresolved and global trade fragile, investors prefer liquidity and safety. “People are taking money out and putting it into dollar assets because uncertainty is quite high,” he added.
Rupee among the weakest globally
Comparative currency data underscores the pressure. Over the past week, the rupee has fallen 1.12 per cent, while several global currencies have been more resilient. On a year‑to‑date basis, the rupee is down 5.1 per cent, making it the weakest among major tracked currencies. Bhansali estimates the rupee is now undervalued by around 7 per cent for the current fiscal, especially as China’s yuan has appreciated. “All this while the yuan has been appreciating and the rupee has been depreciating,” he said.
| Currency | 1 Week Return (%) | Year-To-Date Return (%) | Indian Rupee |
Geopolitics casts a long shadow
The intensifying conflict involving Israel, Iran and the US has rattled markets. Even temporary truces have failed to restore confidence. “Despite the fact that Trump has said he is giving 10 days more… Israel attacking Iran, and Iran attacking other countries, affects all countries in the Gulf,” Bhansali said. “Our imports from the Gulf and exports to the Gulf have also been impacted.”
RBI’s limited room for manoeuvre
Markets are watching closely to see whether the Reserve Bank of India steps in more aggressively. So far, intervention has been measured. “The rupee has now devalued quite a bit, so there is a good chance for it to appreciate by one or two rupees from here if RBI sells dollars in a big way,” Bhansali said.
“At least USD 5–10 billion on the same day or consistently.” However, he cautioned that the central bank has constraints. “They don’t have a compulsion to act aggressively unless they feel this level is now too extreme,” he said, adding that 94.80 may act as a resistance level but “not a holding point.” FX swaps conducted earlier at 91–92 levels are now out of the money, potentially creating mark‑to‑market pressures for the RBI.
The RBI was seen intervening intermittently on Friday to curb the pace of the currency’s decline, with state‑run banks selling dollars around the 94.85 level, helping the rupee recover marginally from its day’s lows. However, sentiment remained weak as rupee is the worst‑performing currency in Asia this quarter, having fallen over 5 per cent since December 31, while overseas investors have net sold more than USD 13.6 billion worth of Indian equities over the same period, exacerbating pressure on the local currency.
Broader markets mirror currency stress
The rupee’s slide coincided with broad market weakness. The Nifty fell for the fifth straight week, losing 1.2 per cent, while Bank Nifty dropped 2.2 per cent and PSU banks plunged nearly 4 per cent. Only IT stocks and pharma managed to escape the sell‑off. Bond yields rising alongside equity declines reinforces a risk‑off environment, analysts said.
The rupee may fall to 100 per dollar
Looking ahead, Bhansali noted that “Rupee may see the level of 100 per dollar too,” he warned. “It’s not highly unlikely at this stage.” Even India’s relatively strong growth trajectory may not shield the currency. “India may still grow at 6–7 per cent, but investors are finding better returns elsewhere,” he said. “Upside for the rupee will be limited; downside will be larger,” Bhansali noted. Over the long term, history offers little comfort. Over the past 25 years, the rupee has depreciated by an average of 5 per cent annually, with sharper falls in periods of global stress.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
