The rupee and the bond market are gearing up for a turbulent Monday as the sudden escalation of the Iran–US conflict triggers a global flight to safety, pushes crude oil higher, and fuels a risk-off sentiment across emerging markets. Treasury heads and chief economists expect the rupee to open weak and bond yields to rise, and anticipate the Reserve Bank of India (RBI) stepping in early to curb volatility.
$80 Oil and the Flight to Safety
“The West Asia conflict is a big black swan event for the Indian market,” said Anshul Chandak, head treasury, RBL Bank. He said till Friday it was priced in that there would be a truce between the US and Iran, but now, with rising oil prices, inflation can start rising, and consequently, bond yields will blow out too. “We expect 10-year G-Sec to open 5 basis points higher on Monday. If things stabilise during the week, some value buying will emerge at 6.80 levels.” Chandak expects the rupee to open with a negative gap, testing Rs 91.50–92.
“The USD/INR pair should open around 91.30/40 against the traded levels of 91.10 post closing on Friday,” said Sudarshan Nambiar, head of trading and primary dealer at Yes Bank. “Gap-up shouldn’t be as much, but we will have to see where the RBI protects the pair.”
The geopolitical shock has already driven investors toward safe-haven assets, compressing yields on US Treasuries while lifting crude oil prices, said Kunal Sodhani, Head Treasury at Shinhan Bank. With nearly 20% of global oil supply passing through the Strait of Hormuz, markets are pricing in the risk of supply disruption. “A higher oil import bill means more dollars leaving India, which weakens the rupee. The RBI may intervene to smooth volatility, but persistent oil cost pressure tends to weigh on the currency.”
Defensive Maneuvers
Market participants expect the RBI to be active from the opening bell. Dilip Parmer, research analyst at HDFC Securities, said the rupee may open with a deep cut, prompting aggressive RBI action. “The RBI may cap volatility in the 91.10–91.40 range. After an initial sharp drop, some losses may be pared after intervention. If 91.40 is crossed, 92 is possible.” He expects the rupee to trade in a wide 90.40–92 range in the near term.
Economists also see volatility ahead. Madan Sabnavis, chief economist at Bank of Baroda, said the rupee will remain choppy in the near term. “If oil stays for long above $70 per barrel, the trade deficit will be under pressure, but may not affect inflation or fiscal arithmetic at this point.”
Gaura Sengupta, chief economist at IDFC First Bank, said the depreciation pressure is already visible in the offshore market. “There are some near-term risk-off. We expect the RBI to intervene and focus on limiting volatility in the rupee and cap the upward movement in USD/INR.” She added that G-Sec yields have been moving in tandem with the currency and may face upward pressure, though she does not see risks to domestic inflation or the FY27 fiscal deficit target. “Any temporary spike in crude prices will be absorbed by OMCs. As of now, we do not expect the conflict to persist for long.”
Madhavankutty G, chief economist at Canara Bank, said: “Uncertainty is spiking sharply. If crude crosses $75 per barrel, the rupee could breach 91, with 91.5–92 likely if the conflict persists. He expects the 10-year benchmark yield to trade between 6.70% and 6.80%.”