Rupee hits record low as oil risks, offshore dollar bids mount

The Indian rupee ​fell to a record low on ​Friday on concerns that the Iran war-induced surge in ​oil prices could disrupt the South Asian nation's growth-inflation dynamics and dent capital flows, with traders also pointing to elevated offshore dollar bids.

The rupee weakened to 92.4750 ‌per dollar, ⁠eclipsing its previous ⁠all-time low of 92.3575 hit on Thursday. It closed at 92.4550, down 0.7% ​on the week.

Likely intervention helped limit the currency's losses, traders said.


Investors are bracing for ​a prolonged conflict as the Middle East war nears the two-week mark, keeping energy prices elevated. The conflict has also prompted foreign investors to sell ​Indian equities worth nearly $5 billion so far ⁠this month.

India's ‌benchmark equity index Nifty 50 has slipped into ​correction territory ​since the U.S. and Israel launched strikes on Iran on ⁠February 28. The index fell 2% on Friday.

A ​prolonged Middle East conflict could significantly worsen the rupee's ​outlook, analysts said, warning that persistently high energy prices may push the currency beyond 95 per dollar.

Separately, India intends to hold off on signing a trade deal with the United States for several months, taking a wait-and-watch approach as U.S. tariff policies evolve, Reuters reported on ‌Friday.

OFFSHORE PRESSURE

Traders have also flagged growing pressure on the rupee from the non-deliverable forwards market, which was reflected ​in a persistent arbitrage ​between offshore and ⁠local markets on Friday.

A near-tenor dollar-rupee volatility skew rose this week to its highest level since November 2022, signalling heightened appetite to wager against the ​rupee.

"Risk of sharp widening in (India's) current account deficit amid already-weak capital inflows is a concern this time," economists at Standard Chartered said in a note.

"We think INR has to be the shock absorber to limit the impact on the economy," they added.