The Indian rupee fell to a one-month low amid escalating Middle East tensions, driving crude oil prices up to $82 per barrel. The domestic currency declined 50 paise or 0.55% to 91.48 against the dollar on Monday, the worst single-day fall since January 21, according to Bloomberg.
The Reserve Bank of India (RBI) likely stepped in through its dollar sales, traders said. They added that the RBI defended the currency at 91.48 and capped further depreciation. The RBI is expected to sold around $4.5 billion on Monday to curb the volatility, according to currency dealers.
What do dealers say?
“The RBI’s likely intervention in the market shielded the rupee from steeper losses relative to other Asian currencies,” said a dealer at a foreign bank. The Indian rupee was the fourth worst-performing currency on Monday. Thai Bhat depreciated 1.16%, followed by Phillipine pesso at 0.89%. Malaysian ringgit and Taiwanese dollar fell 0.88% and 0.69%, respectively.
The rupee’s fall on Monday has taken the FY26 year-to-date (YTD) depreciation to 7% so far. The dealer said that rupee will be under pressure until the geopolitical situation get resolved. He added that, however, the RBI will continue to step in to curb excessive volatility.
Over the weekend, the US-Israel strike on Iran intensified, with reports confirming the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. This prompted a safe-haven rush, which strengthened the dollar. The dollar index rose to 98.45, its highest in over a month.
Heightened risks
“The recent events in Iran have heightened risks, though much of the reaction is sentiment-driven for now. The further depreciation of rupee will depend on how long the conflict persists. If this conflict sustains for long, and oil prices rise to $90–100 per barrel, it would notably pressure macros, forcing the rupee weaker—potentially beyond 93,” said Dhiraj Nim, FX strategist and economist at ANZ Bank.
Nim added that this is a global risk, not India-specific. Therefore, the RBI’s intervention will be contained only to smoothing out the volatility as there is no point in fighting high oil prices with FX reserves. “We have to accept a weaker rupee if oil prices stay elevated,” Nim said.
Currently, India imports more than 80% of its oil needs and the higher oil prices will significantly impact the country.
A report by Nomura dated March 1 noted that every 10% increase in crude oil prices typically widens the current account deficit (CAD) by around 0.4% of GDP. “India’s major external sector risk though, is not from its current account, but from the capital account, where a sharp drop in foreign investment flows is leading to a large balance of payments deficit in FY26.
A combination of a widening CAD and foreign outflows due to global risk aversion could accentuate rupee weakness,” the report said.