The Indian rupee plunged to a record low on Friday, breaching the 94-mark and sliding to 94.84 against the US dollar, as rising crude oil prices and global geopolitical tensions intensified pressure on the currency.
Oil Prices and Geopolitics Drive Decline
The sharp depreciation is largely linked to crude oil prices climbing above $100 per barrel, driven by uncertainty surrounding the ongoing tensions involving Iran.
Market sentiment has also been shaken by mixed signals from Donald Trump, who hinted at both a pause in attacks on Iran’s energy infrastructure and the possibility of increased pressure if Tehran does not meet US demands.
According to experts, the lack of clarity on how the conflict will evolve has added volatility to global markets, directly impacting oil-importing economies like India.
FII Outflows Add to Currency Pressure
Foreign institutional investor (FII) outflows have further weakened the rupee. Since the escalation of the conflict, nearly $13 billion has exited Indian markets, increasing demand for the US dollar and putting additional strain on the domestic currency.
RBI’s Strategy Under Scrutiny
The Reserve Bank of India has been actively managing rupee volatility, particularly through interventions in the forward currency market.
Experts note that the central bank has built a significant net short dollar position—reportedly nearing $100 billion. While this strategy helps stabilise the rupee in the short term by easing immediate dollar demand, it may defer depreciation pressures rather than eliminate them.
As these forward contracts mature, they could create future liabilities, contributing to:
- Higher forward premiums
- Tighter liquidity in currency swap markets
- Persistent underlying demand for dollars
Rupee Outlook: 95 Mark in Sight?
Analysts suggest that the rupee could weaken further in a controlled manner if current global conditions persist. Key factors to watch include:
- Sustained high crude oil prices
- Continued strength in the US dollar
- Ongoing FII outflows
The 95-per-dollar level is now being seen as a crucial psychological threshold, with immediate support for the rupee placed between 93.80 and 94.00.
Room for Recovery?
Despite the bearish outlook, experts believe a reversal of ₹1 to ₹1.5 is possible if:
- Geopolitical tensions ease
- Crude oil prices stabilise or decline
For now, however, the rupee remains vulnerable to external shocks, highlighting the interconnected nature of global energy markets, capital flows, and currency stability.