The rupee slid to a record intraday low of 95.34 on Thursday, breaching its previous intraday trough of 95.22 hit in late March, as crude oil prices briefly surged past $126 per barrel amid stalled US-Iran negotiations that clouded prospects of reopening the Strait of Hormuz and the easing of tension in West Asia.
The currency, however, pared losses to settle at 94.84, only marginally weaker than the previous close of 94.88, as oil prices fell below $120 per barrel. Market participants warn that the rupee could weaken further toward 97 if oil prices sustain levels above $125 per barrel.
Pressure on the rupee was exacerbated by a hawkish tilt in the US Federal Reserve’s latest policy stance, which strengthened the dollar and intensified capital outflows from emerging markets. The US is also pushing for a coalition to ensure freedom of navigation in the Strait of Hormuz, adding to geopolitical uncertainty. Analysts caution that sustained currency weakness could trigger a negative feedback loop — dampening foreign investor returns and fuelling inflation through higher import costs.
“What we are witnessing is a textbook reflexive trade,” said Anindya Banerjee, head of commodity and currency research at Kotak Securities. He said that rising oil prices are triggering FII outflows, compounding the dollar demand from oil importers, and the combination is overwhelming whatever defence the RBI is putting up.
He added that the RBI is focused on managing volatility rather than defending a specific level. “The next important level we are watching is 96, and a sustained break above 96 opens the path to 97 — a level we see as achievable if Brent breaches $125 and the Hormuz situation deteriorates further,” he said.
Barclays, in a note cited by Reuters, said that after breaching the psychologically-significant 95 mark, risks of further depreciation have increased, with the rupee reaching its 2026 year-end forecast of 96.80 earlier than expected.
More measures
The rupee’s recent decline has erased gains driven by the central bank’s currency-supportive measures last month, and has led to expectations of additional policy interventions.
If depreciation pressures persist, the RBI may explore steps to curb oil-related dollar demand in the spot market, restrict gold imports, or tighten monetary policy, said Vivek Rajpal, Asia macro strategist at JB Drax Honore.
“Historically, elevated oil prices tend to feed into inflation, prompting a policy response from the RBI,” he noted.
India’s foreign exchange reserves, which had risen to a record $728.49 billion in late February before the onset of the West Asia conflict, have since declined to $703.31 billion as of April 17.
“The RBI will need to deploy reserves judiciously while managing currency pressures,” said Gaura Sen Gupta, chief economist at IDFC First.
SBI’s group chief economic adviser Soumya Kanti Ghosh also emphasised the need for a broader policy response.
Asian weakness
The surge in oil prices above $120 per barrel is weighing heavily on Asian currencies, pushing several to record or near-record lows as inflation concerns intensify.
Since the onset of the West Asia conflict two months ago, currencies such as the Indonesian rupiah, Indian rupee and the Philippine peso have depreciated sharply, ranking among the weakest performers across emerging markets.
The selloff reflects these economies’ heavy dependence on imported oil, making them particularly vulnerable to energy price shocks.