Rupee could weaken further and may even touch the 100 mark against the US dollar if the ongoing Iran war continues, according to a Bloomberg report citing global analysts and market data.
The currency has already been under pressure and any prolonged rise in crude oil prices could add to the stress.
Rupee has declined by around 10% over the past year and is among the worst-performing currencies in Asia this year. Analysts say that while authorities are trying to slow the fall, these steps may only provide short-term support.
According to Bloomberg, analysts at Wells Fargo and VanEck have warned that higher oil prices could speed up the rupee’s fall. India depends heavily on oil imports, and rising crude prices increase the country’s import bill.
This leads to higher inflation and a wider current account deficit, both of which put pressure on the currency.
Brent crude has already risen sharply since the conflict began, jumping about 44% and touching a high of $119.50 per barrel. Some analysts believe prices could rise further to $150 or even $200 if supply disruptions continue, especially around key routes like the Strait of Hormuz.
in the currency market. It recently capped banks’ end-of-day positions in the onshore currency market at $100 million. This move is aimed at reducing speculative bets against the rupee.
However, market movements suggest that such steps may have limited impact.
The rupee initially rose by as much as 1.4% after the new rules were announced but later reversed direction and hit a fresh low of 95.125 on the same day.
Analysts believe this shows that deeper economic factors are driving the currency’s movement.
— it is a credible stress scenario if current conditions persist,” Ahmed Azzam, head of financial market research at Equiti Group, was quoted as saying by Bloomberg.
He added that the measures taken so far appear to be short-term tools rather than a long-term solution.
Market signals also point to expectations of further weakness in the rupee. Options pricing shows that traders are preparing for a possible move towards 100.
According to Bloomberg data, there is about a 13% chance that the rupee could reach 100 against the dollar by the end of June, and around a 41% probability by the end of the year.
Nick Twidale of AT Global Markets told Bloomberg that bets against the rupee continue despite recent curbs.
“100 and beyond is a virtual certainty as long as the war persists,” he said, adding that market forces may outweigh central bank actions.
The future path of the rupee will depend largely on how long the conflict continues and how high oil prices go.
Aroop Chatterjee, a global macro strategist at Wells Fargo, said that if the war continues through April, the rupee could cross 100 against the dollar.
“If the US-Iran war continues through the end of April, I think it’s very likely that dollar-rupee finds itself above 100,” he told Bloomberg.
He also noted that past events, such as the Russia-Ukraine conflict in 2022, led to a 10% fall in currencies over a few months. This time, the impact could be stronger due to a sharper oil shock.
The rupee was already facing challenges even before the conflict began. These include capital outflows, weak foreign investment and concerns around trade.
Bloomberg reported that global funds pulled out about $12 billion from Indian equities in March, marking one of the largest monthly outflows on record.
There are also concerns that remittances from Indians working in Gulf countries could decline if the conflict affects regional economies.
In addition, the RBI’s recent measures may reduce liquidity in the currency market, which could increase costs for importers and investors and shift trading activity to offshore markets.
Some analysts believe that even if the conflict ends, the rupee may not recover quickly.
“If and when it does end, I’d expect the rupee to resume underperforming,” Win Thin, chief economist at Bank of Nassau, told Bloomberg.
Anna Wu, a strategist at VanEck, also said that India remains vulnerable due to its dependence on oil and recent capital outflows.
“I think it’s possible to reach 100,” she said, adding that risks to economic growth remain.
For now, the rupee’s direction will depend on global developments, especially oil prices and the progress of the conflict. As uncertainty continues, the possibility of the currency weakening further cannot be ruled out.