The rupee slumped to a record low on Wednesday as a surge in crude prices, heightened geopolitical tensions in West Asia and tightening global dollar liquidity combined to pressure the currency, raising concerns over inflation, capital flows and India’s external balances.
The rupee fell 67 paise to close at an all-time low of 92.16 against the US dollar. Brent, the global oil benchmark, crossed $82 per barrel in futures trade after US strikes on Iran and Tehran’s retaliatory measures heightened concerns over possible disruption to energy shipments through the Strait of Hormuz. Weak domestic equities and continued foreign fund outflows added to pressure on the Indian currency.
In the interbank foreign exchange market, the rupee opened at 92.05 and slid to an intraday record low of 92.35 before settling at 92.16. Analysts expect the currency to weaken further toward the 93-per-dollar level in the near term.
Market observers said the RBI likely intervened after the rupee breached the 92-per-dollar mark, selling dollars to curb volatility and prevent disorderly movements.
Anindya Banerjee, head of currency and commodity research at Kotak Securities, said the RBI is expected to intervene periodically to contain excessive volatility. Elevated crude prices will continue to weigh on the rupee, with the Strait of Hormuz situation remaining the key variable. Any prolonged disruption could push oil prices higher and drive USD-INR upward.
Foreign portfolio inflows, which showed signs of recovery in February, could reverse amid currency volatility. If depreciation outpaces yield differentials, portfolio flows may weaken, said Sachin Sawrikar founder of Artha Bharat Investment Managers.
Analysts also warned that sustained oil price shocks could widen the current account deficit and transmit inflation across sectors. Analysts feel the RBI has likely adjusted the maturity profile of its short dollar forward positions, reducing near-term delivery obligations and creating room for fresh intervention if pressures persist.