Indian rupee slid to a record low on Friday as mounting concerns over the economic impact of the Iran war and surging oil prices weighed heavily on the currency.
Analysts warned that a prolonged conflict in the Middle East could further weaken the rupee, potentially pushing it beyond 95 against the US dollar.
The rupee fell to 92.4325 per dollar, surpassing its previous all-time low of 92.3575 recorded on Thursday. The currency declined around 0.2 percent during the day and has lost about 1.5 percent since the Iran war erupted.
Bankers said the fall would likely have been steeper without intervention by the central bank in the spot, non-deliverable forwards and futures markets. According to them, the central bank was again active on Friday to support the currency.
Investors are preparing for a prolonged confrontation, with the Middle East war nearing its second week. Iran’s new Supreme Leader, Mojtaba Khamenei, has vowed to keep the Strait of Hormuz shipping route closed.
Apart from the disruption to global energy supplies, the conflict has prompted foreign investors to offload nearly $5 billion worth of Indian equities so far this month, further intensifying pressure on the rupee.
India’s benchmark equity index Nifty 50 has dropped 7 percent since the US and Israel launched strikes on Iran on 28 February. The index also fell more than 1 percent on Friday.
Economists and analysts from HDFC Bank, Elara Securities, QuantEco Research and MUFG expect continued pressure on the rupee in the near term.
MUFG said that if oil prices remain around $100 per barrel – their current level – the rupee could weaken to around 95.50 by the end of the year. Elara Securities expressed a similar outlook, projecting the currency to trade within the 94-95 range.
“In a left tail risk scenario,” MUFG said in a note, referring to extreme negative events, “if oil sustains at $120/bbl coupled with meaningful energy shortages, we think USD/INR at 97.50 and even higher will look achievable.”
HDFC Bank expects the rupee to trade between 92 and 95 in the coming months if the conflict continues. Meanwhile, economists at QuantEco Research offered a more pessimistic projection, estimating that the rupee could weaken to 98.5 by the end of March 2027 under a $100-per-barrel oil price scenario.
