“We see the Indian rupee as vulnerable and USD/INR likely rising above the 95 levels if the Iran and Middle East conflict is sustained and the Strait of Hormuz remains closed,” said Michael Wan, currency strategist at MUFG Bank Ltd.
A 10% gain in global crude prices leads to a 15 basis-point drop in economic growth and a 30 basis-point rise in inflation, according to the central bank.
Even before the conflict broke out, the RBI had been intervening for months to steady the rupee, as high US tariffs spurred record equity outflows. Its net-short dollar book — a measure of the degree to which it has sold forward its stockpile of US currency — is nearing $100 billion across offshore and onshore markets, Bloomberg News reported on Thursday, citing people familiar with the matter.
Global funds have sold over $9 billion in Indian equities this year, adding to the record $19 billion withdrawals in 2025. They’ve also been selling local debt, with outflows from index-eligible bonds at $1.4 billion in March, heading for a record monthly outflow.
Going long on the dollar against the rupee is one of Nomura Holdging Inc.’s key trades amid currently higher crude prices. It expects the rupee to fall to 96 to a dollar by end-June.
The brokerage cites India’s high exposure to energy prices, foreign fund outflows and the RBI likely being amenable to gradual rupee depreciation among the reasons.
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