By Jaspreet Kalra
MUMBAI, – The Indian rupee hit a record low past the 94-per-dollar mark on Friday, hammered by worries over the energy supply crisis sparked by the Middle East war, putting the currency on track for its first fiscal-year drop since the ‘taper tantrum’.
The rupee fell to 94.2950 per dollar, eclipsing its previous all-time low of 93.98 hit earlier this week. It has declined about 3.5% since the war began last month and is down more than 10% since March 31, 2025.
India’s fiscal year runs from April to March.
The last comparable drop was in 2013-14, when global markets were roiled by the so-called ‘taper tantrum’ after the Federal Reserve signalled it would begin withdrawing post-crisis monetary stimulus – one of the most turbulent periods for the rupee since the global financial crisis.
The ongoing war, meanwhile, is the most severe energy supply disruption in decades and has sent oil prices soaring and curtailed key exports from the Middle East, with spillovers ranging from cooking gas to household plastics.
The conflict has also pummelled global equities and sent bond yields higher, with investors fretting over inflation and the hit to government finances.
On Friday, India’s benchmark equity index, the Nifty 50, fell over 1%, while the yield on the 10-year benchmark bond surged as much as 9 basis points to 6.96%, the highest since August 2024.
DEEPENING CRISIS
While investors found limited comfort in U.S. President Donald Trump’s decision to extend his ultimatum to strike Iranian power plants by 10 days, reports that Trump was considering sending more troops kept markets on tenterhooks.
Analysts have shaved growth forecasts for India, pencilled in weaker forecasts for the rupee and some also anticipate rate hikes by the Reserve Bank of India over the next 12 months as spillovers from the crisis threaten to lift inflation.
Even if a lengthy conflict is avoided, Bernstein sees a realistic chance of the rupee breaching the 98-per-dollar level this year, with pressure primarily stemming from India’s current account balance.
Societe Generale, meanwhile, recommends shorting the rupee against the dollar, with a target of 96.
“RBI interventions look to be less aggressive, and market chatter is turning to the need for FX reserves to be drawn down sparingly. The RBI’s focus looks to have shifted towards capping the 10y IGB yield below 7% while letting FX gradually depreciate,” the firm said in a note.
(Reporting by Jaspreet Kalra; Editing by Sonia Cheema)
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