Rupee Plunges Past 94 vs Dollar, Recovers Amid Geopolitical Turmoil
The Indian rupee breached the critical 94-per-dollar mark for the first time in history on Monday, reflecting intense pressure from escalating Middle East tensions, persistent foreign fund outflows, and volatile global crude oil prices. However, the currency staged a sharp recovery later in the day, closing unchanged at 93.53 against the US dollar, narrowly avoiding a fresh record closing low.
Intraday Volatility and Market Dynamics
At the interbank foreign exchange market, the local currency opened at 93.84 before slipping past the 94 barrier during intraday trade. This marked a significant milestone, as the rupee had already crossed the 93-mark on Friday, settling at 93.53 after a 64-paise plunge. The currency touched an intraday low of 93.98, surpassing its previous low of 93.7350 hit on Friday, and even moved past 94 per dollar on the interbank order matching system after the local spot session ended at 3:30 pm.
Forex traders attributed the rupee's heavy strain to a risk-averse investor sentiment, fueled by fears that the ongoing Middle East conflict could prolong disruptions in energy markets. A combination of spiraling global crude prices, unabated foreign fund outflows, a stronger US dollar, and a sharp fall in domestic equities all contributed to the slide.
Expert Analysis and Future Outlook
Anuj Choudhary, research analyst at Mirae Asset ShareKhan, noted, "The rupee hit fresh all-time lows on Friday and breached the 94-mark for the first time amid escalating geopolitical tensions in the Middle East and weak domestic markets. Surge in crude oil prices and FII outflows, too, weighed on the rupee." He added, "We expect the rupee to trade with a negative bias as deteriorating global sentiments and geopolitical tensions may keep the rupee under pressure. However, time-to-time intervention by the Reserve Bank may support the rupee at lower levels."
According to Choudhary, the USD-INR spot is expected to trade in a range of Rs 93.60 to 94.40. The rupee has now fallen approximately 3 percent since the Iran war began on February 28, hurt by an over 50 percent surge in oil prices and severe disruptions to gas supplies. This broader trend raises concerns for India, as Asia's third-largest economy remains highly sensitive to imported energy costs.
RBI's Role and Regional Comparisons
Despite the pressure, the Reserve Bank of India (RBI) has been active in limiting sharper losses, with its presence in the market appearing mild on Monday, likely focused on the non-deliverable forwards (NDF) market. The rupee has held up better than some regional peers during the crisis due to frequent RBI interventions. While the rupee is down about 3 percent since the war began, currencies such as the South Korean won and Thai baht have fallen 5 percent and nearly 6 percent, respectively.
Global and Domestic Market Pressures
The global backdrop remains unfavourable for emerging market currencies. The dollar index, which measures the greenback against a basket of six currencies, rose about 0.3 percent to 99.9, helped by safe-haven demand as hopes of de-escalation in the Middle East faded. Asian currencies were down between 0.1 percent and 0.8 percent on Monday, with ING describing the current market environment as "a sell-everything mood" affecting equities, bonds, and precious metals, which benefits the dollar against higher beta currencies.
Domestically, the rupee's slide tracked a sharp sell-off in Indian financial markets. The Sensex crashed 1,836.57 points, or 2.46 percent, to 72,696.39, while the Nifty fell 484.30 points, or 2.10 percent, to 22,630.20. Foreign institutional investors sold equities worth Rs 5,518.39 crore on a net basis on Friday, with foreign investors pulling out more than $11 billion from Indian stocks and bonds in March, putting the month on track for the heaviest monthly outflows since October 2024.
Forex Reserves and Economic Watchfulness
Adding to the watchfulness, India's forex reserves fell by $7.052 billion to $709.759 billion in the week ended March 13, according to RBI data released on Friday. While reserves remain substantial, the drop will likely keep markets alert to how aggressively the central bank may need to step in if volatility intensifies, underscoring the delicate balance in managing currency stability amid ongoing geopolitical and economic challenges.
