Oil woes, capital outflows drag rupee to record low

The Indian ​rupee fell to a record low on Wednesday, ​extending a rough patch as the raging conflict in the Middle East kept oil prices elevated, raising macroeconomic risks for Asia's third-largest economy and sparking ‌capital outflows.

The ⁠rupee fell ⁠to 92.6225 per dollar, eclipsing its previous low of 92.4750 hit last ​week.

The currency has declined about 1.5% since the Iran war began amid ​nearly $8 billion of foreign portfolio outflows from local stocks over March so far.


Brent crude oil prices have climbed about 40% since the war broke out. Sustained high ⁠oil prices ‌would widen the current account deficit and fuel inflation in India, leaving the currency more exposed than many ⁠of its peers.

India imports over 80% of its ​energy needs. The Middle East conflict also threatens ​to curb remittances from the diaspora and hurt exports to the region.

The rupee has not fallen more steeply largely on the back of frequent interventions by the central bank, including on Wednesday, traders said.

With oil remaining around $100 per barrel, ‌the pressure on the rupee will likely continue till the tensions ease, Dhiraj Nim, an economist and FX ​strategist at ​ANZ, said.

"The RBI ⁠will be able to defend against speculation, but insofar as high oil prices will weaken the balance of payments, the RBI may ​not be adamant to hold the INR."

The rupee was also pressured by elevated demand to buy dollars at the daily reference rate and a pick-up in importer hedging once the 92.50 level was breached, traders said.