The rupee tumbled to a record low on Friday, breaching the 94-per-dollar mark, as escalating concerns over an energy shock triggered by West Asian conflict pushed the currency on track for its worst fiscal-year drop in more than a decade.
The rupee weakened by around 0.9 per cent to close at 94.84 against the US dollar. Since the onset of the Iran-linked conflict at the end of February, the currency has depreciated nearly 4 per cent, taking its cumulative fall for the current fiscal year to around 11 per cent.
“The rupee has slipped past 94 per dollar — marking its worst fiscal-year performance in over a decade — amid mounting fears of energy supply disruptions stemming from the West Asia crisis,” said Vinay Rajani, senior technical research analyst at HDFC Securities.
The last comparable decline dates back to 2011-12, when global risk aversion driven by the eurozone debt crisis, coupled with India’s widening current account deficit and weak capital inflows, led to a depreciation of nearly 14 per cent in the rupee.
The ongoing West Asia conflict — considered among the most severe disruptions to global energy supply in decades — has driven crude oil prices sharply higher and constrained key exports from the region. The ripple effects are being felt across sectors, from cooking gas to petrochemical-based household products.
Market sentiment remained fragile despite US President Donald Trump extending a deadline for Iran to reopen the Strait of Hormuz, a critical conduit for global oil shipments. Oil prices remained above $100 per barrel, reflecting persistent supply concerns.
Analysts at Bernstein warned that continued spillovers from the conflict could push the rupee toward 98 per dollar while exerting downward pressure on Indian equities, underscoring the economy’s vulnerability to energy price shocks.
Reserves fall
India’s foreign exchange reserves declined sharply by $11.413 billion to $698.346 billion for the week ended March 20, following the previous week’s drop of $7.052 billion. The reserves had peaked at an all-time high of $728.494 billion in late February, just before tensions escalated.
According to Societe Generale, the Reserve Bank of India appears to be moderating its intervention in currency markets, prioritising the management of domestic bond yields. “The RBI’s focus seems to have shifted toward keeping the 10-year government bond yield below 7 per cent while allowing a gradual depreciation in the currency,” a note from Societe Generale said.
Cautious outlook
The macroeconomic outlook is also turning cautious, with economists trimming growth projections.
Early indicators suggest a slowdown in private sector activity in March, according to D.K. Srivastava, chief policy adviser, EY India. If the conflict persists through FY27, India’s GDP growth could be reduced by about 1 percentage point, while inflation may rise by 1.5 percentage points from baseline estimates of 7 per cent and 4 per cent, respectively.
Earlier this month, the union government proposed creating a ₹1 lakh crore Economic Stabilisation Fund to provide fiscal headroom to respond to global shocks and unforeseen crises.
