Rupee records steepest decline in over 5 weeks amid geo-political tensions

The rupee saw its sharpest fall in over five weeks as crude oil prices surged on rising West Asia tensions; RBI interventions helped prevent the currency from breaching the 91.5-per-dollar level

The rupee recorded its steepest single-day decline since January 21, due to a rise in crude oil prices following escalating tensions in West Asia.

 

The local currency depreciated amid a broader flight to safe-haven assets and continued foreign outflows from domestic equities. It was also due to mounting concerns that higher import costs could widen the trade deficit and weigh on the currency further.

 

The rupee settled at 91.48 per dollar, against the previous close of 90.99, a decline of 0.54 per cent.

 

“Triggered by spiking oil prices in the wake of the Iran crisis, the rupee saw its sharpest one-day drop since late January. The currency remains under pressure as investors move towards safe-haven assets. There is foreign capital outflow from equities, and fears grow that costly import will hurt the trade balance,” said Dilip Parmar, senior research analyst, HDFC Securities. 

 

 

“For now, the rupee-dollar pair maintains a bullish bias, facing a ceiling at ₹92 while expected to find floor around ₹91.10 per dollar,” he added.

 

The domestic unit has depreciated by 6.57 per cent in the current financial year so far. Market participants said the RBI intervened in the foreign exchange market via dollar sales, which contained volatility and depreciation beyond the ₹91.50 per dollar mark.

 

“The RBI appears to have intervened through state-run banks and forward markets to smooth volatility rather than defend a specific level, which helped prevent a sharper slide. In the near term, the rupee is likely to remain sensitive to crude price movements and geopolitical developments. And, RBI action is expected to focus on containing disorderly moves while allowing market-driven price discovery,” said Abhishek Goenka, founder & chief executive officer (CEO) of IFA Global. 

 

Government bond yields also inched up during the day tracking the foreign outflow and weakness in currency.

 

The yield on the benchmark 10-year government bond settled at 6.68 per cent, against the previous close of 6.66 per cent.

 

“The bond market tracked the crude price surge and weakness in rupee. There is support at 6.70 per cent,” said a dealer at a state-owned bank.

 

Brent crude oil prices rose to 78.81 per barrel against 72.87 per barrel. Given Iran’s role as a key global supplier, markets are closely watching for any potential supply disruptions. In the near term, this backdrop is expected to exert upward pressure on the rupee. However, if the escalation proves short-lived, conditions should normalise. The base case does not factor in a major disruption to crude supplies or a prolonged conflict.