Currency Pressure Mounts as External Factors Intensify
India’s rupee is facing the risk of weakening to a record level of 100 against the US dollar if the ongoing Iran war continues, with analysts warning that recent measures may offer only temporary support.The currency was already under strain before the conflict, impacted by widening external balances and persistent capital outflows.
Oil Price Surge Adds to Economic Strain
Strategists at Wells Fargo and Van Eck Associates Corp. have flagged elevated oil prices as a key driver that could accelerate the rupee’s decline. Higher crude prices are expected to push up inflation and widen the current-account deficit, adding further pressure on the currency.Market signals are aligning with this outlook. Options pricing indicates expectations of continued depreciation, with traders increasingly factoring in the possibility of the rupee approaching the 100 mark.
RBI Intervention Shows Limited Impact
The rupee has already emerged as one of Asia’s weakest-performing currencies against the dollar this year. In response, the Reserve Bank of India has introduced a significant measure by capping banks’ end-of-day positions in the onshore currency market at 100 million dollars.This move is aimed at forcing lenders to reduce exposure and limiting large one-sided bets against the rupee.
However, market reaction suggests the impact may be short-lived. On Monday, the rupee initially strengthened by as much as 1.4 percent following the announcement, but later reversed direction to hit a fresh low of 95.125 during the same session. The market remained closed on Tuesday.
Analysts Warn of a Credible Stress Scenario
Market experts caution that the situation could deteriorate further if current conditions persist.Ahmed Azzam, Head of Financial Market Research at Equiti Group, noted that a move to 100 per dollar is no longer a remote possibility but a credible stress scenario. He added that the latest policy actions appear to be short-term stabilisation efforts rather than a long-term structural solution.
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