The Indian rupee fell beyond the 93-per-dollar threshold, setting a new historic low, as escalating Middle East conflict fueled concerns over a widening current account deficit in India. Resuming trade after a public holiday on Thursday, the rupee weakened alongside other regional currencies, declining as much as 0.7% intraday to 93.28 against the U.S. dollar. Traders indicated that the Reserve Bank of India intervened in the market on Friday to support the local currency.
International crude oil prices experienced sharp fluctuations following attacks on key energy infrastructure in the Middle East. Although Brent crude retreated from its highest closing price since July 2022 after U.S. and Israeli leaders issued statements aimed at calming markets, it remained significantly above the $70 baseline estimated by the Indian central bank in October of last year.
Michael Wan, a foreign exchange strategist at MUFG Bank, commented, "We believe the Indian rupee remains under depreciation pressure. If tensions involving Iran persist and the Strait of Hormuz remains blocked, the USD/INR exchange rate is likely to surpass the 95 level." Data from the Reserve Bank of India indicate that every 10% rise in international crude oil prices reduces the country’s economic growth by 15 basis points and increases inflation by 30 basis points.
Even before the recent conflict erupted, the central bank had been intervening for months to stabilize the rupee, as high U.S. interest rates triggered record outflows from Indian equities. A source disclosed on Thursday that the RBI’s net short dollar position—a measure of its forward sales of dollar reserves—across offshore and onshore markets had approached $100 billion.
So far this year, global funds have reduced their holdings of Indian stocks by more than $9 billion, continuing the record outflow of $19 billion seen in 2025. Foreign investors have also been selling Indian local bonds, with outflows from index-eligible bonds reaching $1.4 billion in March, potentially setting a new monthly record.
Amid elevated global oil prices, going long on the U.S. dollar against the rupee has become one of Nomura Holdings’ key trading strategies. The firm expects the rupee to depreciate to 96 per dollar by the end of June. Nomura cited several core reasons for its bearish stance on the rupee, including India’s high sensitivity to energy prices, persistent foreign capital outflows, and the possibility that the Reserve Bank of India may tolerate a gradual depreciation of the currency.
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