The rupee fell by 67 paise to close at an all-time low of 92.16 (provisional) per dollar in the Interbank Foreign Exchange market on Wednesday due to the rise in crude oil prices due to the West Asia crisis. According to currency traders, there is an environment of uncertainty at the global level due to the US-Iran conflict, which has increased the demand for dollars as a safe investment. Due to this, the dollar index crossed the level of 98, due to which the pressure on the Indian currency increased further. Apart from this, heavy selling in the domestic stock markets and continuous withdrawal of foreign capital also played a role in the fall of the rupee.
In the foreign currency exchange market, the rupee opened at 92.05 and fell to an all-time low of 92.35 during trading. Finally, it closed at an all-time low of 92.16 per dollar, a huge fall of 67 paise compared to the previous closing price. Earlier on Monday, the rupee fell by 41 paise and closed at 91.49 per dollar. The foreign exchange market was closed on Tuesday on the occasion of ‘Holi’.
Anil Kumar Bhansali, head of treasury and executive director of Finrex Treasury Advisors LLP, said that the intensification of the West Asia conflict and the rise in crude oil prices have dampened the enthusiasm of investors. High oil prices increase inflation concerns and fiscal pressure for a big importing country like India. Meanwhile, the dollar index, which shows the position of the US dollar against six major currencies, was trading at 98.82 with a decline of 0.23 percent.
Bhansali said that due to global risk aversion, the dollar index easily crossed the 98 level, while the stock and bond markets as well as gold and silver have been affected. Brent crude futures, the international oil standard, rose 1.29 percent to $ 82.46 per barrel. Fears of disruption of energy flows through the Strait of Hormuz after US attacks and retaliatory actions on Iran have boosted prices. Foreign institutional investors (FIIs) made a net sale of shares worth Rs 3,295.64 crore on Monday.
The biggest reason for the fall in rupee
The biggest reason for such a huge fall in the rupee is the sudden rise in oil prices across the world. The growing conflict in the Middle East has increased the fear of supply disruptions, especially from key energy-producing areas. Brent crude rose above $82 per barrel after rising nearly 12-13 per cent in just two days — its biggest rise since 2020. Traders fear that prolonged tension could affect oil shipments through vital Gulf routes.
India imports more than 80 percent of its crude oil needs. When oil prices increase rapidly, the country has to pay more for imports. This increases trade deficit and weakens the rupee. The Economist estimates that for every $1 increase in crude oil prices, India’s import bill increases by about Rs 16,000 crore. Due to this, the rupee becomes very sensitive to oil shocks.
Impact on Indian economy
High oil prices create many economic challenges. Due to this, fuel prices increase, transportation costs increase, and the risk of inflation increases. Rising inflation often forces policy makers to take strict monetary measures, which can slow economic growth. The government has already expressed concern. The Ministry of External Affairs has warned that disruptions in the Gulf region can have a serious impact on India’s economy. The MEA said any major disruption has a serious impact on the Indian economy, given that India’s trade and energy supply chains pass through the region. The Gulf region remains important for India not only because of oil imports but also because of trade routes and the presence of millions of Indian workers.
Will RBI intervene in the forex market?
Market participants believe that the Reserve Bank of India came into the foreign exchange market after the rupee crossed the 92-per-dollar level. Reports suggest that the Central Bank sold dollars to reduce volatility and prevent panic selling. However, analysts have warned that continued high oil prices may keep pressure on the currency. Dheeraj Nim, forex strategist at Australia and New Zealand Banking Group Ltd., told Bloomberg that higher crude prices are a direct risk to the rupee — we expect a little more intervention from the RBI, but if oil prices remain high, we may have to face a weaker rupee. Some strategists are now expecting the rupee to touch the 93-per-dollar level if geopolitical tensions continue.
FII selling?
Foreign institutional investors have resumed selling Indian equities in recent weeks. Increasing geopolitical uncertainty and weakening currencies have made emerging markets less attractive. When the rupee depreciates sharply, the foreign investor gets lower returns on converting profits back into dollars. This accelerates capital outflow and puts further downward pressure on the currency.
What will happen next to the rupee?
Much depends on oil prices and developments in the Middle East conflict. If crude stabilizes, the rupee may recover due to RBI intervention. But if oil remains high and global tensions increase, the currency may weaken further. For now, the markets are cautious. Investors are keeping a close eye on crude prices, Central Bank action and geopolitical updates which can decide the next movement of the rupee.