Indian rupee under pressure as oil rally sparks fresh lows

The Indian rupee weakened to a fresh all-time low on Wednesday, extending its losing streak as overseas debt repayments and importer hedging demand continued to pressure the local currency despite limited support from higher import duties on precious metals.

The rupee weakened 0.1% to 95.7450 per dollar, slipping past its previous record low of 95.7375 reached on Tuesday.

The decline in the currency comes as rising energy prices linked to the ongoing US-Iran conflict continue to strain India’s macroeconomic outlook.

Economists have revised growth projections lower, increased inflation forecasts, and warned of sustained weakness in the rupee.

Oil prices intensify pressure on rupee

Market participants pointed to surging crude oil prices as a major factor weighing on the Indian currency.

Brent crude prices have climbed nearly 50% since the Iran war began on February 28, contributing to a more than 5% fall in the rupee during the same period.

Radhika Rao, senior economist at DBS, said a sustained recovery in the rupee would depend on changes in global oil prices and foreign investment flows.

“A collapse in oil prices or a resumption in portfolio flows are prerequisites for a durable turnaround in the rupee's bearish run,” Rao said in a note.

The pressure on the rupee has accelerated since the outbreak of the Iran conflict, prompting regulatory responses and increased policy discussions around protecting India’s foreign exchange reserves.

Government and RBI take defensive measures

Traders and analysts said the rupee’s losses could have been significantly steeper without frequent market interventions by the Reserve Bank of India and the implementation of rare regulatory measures.

Indian Prime Minister Narendra Modi, over the weekend, urged several measures aimed at conserving foreign exchange reserves.

In another step to support the currency, the central government on Tuesday night raised tariffs on precious metal imports to curb demand and help cushion the rupee.

Markets are also beginning to assess the possibility of policy tightening in response to inflation risks linked to rising oil prices.

“Markets are pricing in rate hikes to defend the rupee and address potential inflationary pressures, although we do not expect policy tightening to be the immediate response,” Rao said.

Speaking at a conference in Switzerland on Tuesday, RBI Governor Sanjay Malhotra said India’s monetary policy framework can look through temporary supply-side shocks but may act if inflationary pressures become persistent.

Malhotra also warned that although India has so far kept domestic fuel prices unchanged despite rising global energy costs, the government may eventually need to raise fuel prices if the Middle East conflict continues for an extended period.

Global markets remain cautious

Global financial markets traded cautiously amid the geopolitical uncertainty.

Foreign exchange markets remained largely rangebound, while technology-related equities gained support from renewed optimism surrounding artificial intelligence.

Investor sentiment was also shaped by concerns over stalled Washington-Tehran negotiations and hotter-than-expected US inflation data, which continued to influence expectations around global monetary policy and risk appetite.