Rupee hits record low past 94/USD on energy woes; set for worst fiscal in decade and a half

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 and putting the currency on track for its worst fiscal-year drop in over a decade.

The rupee fell to 94.83 per dollar, eclipsing its previous all-time low of 93.98 hit earlier this week. It has declined about 4% ‌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 2011-12, when global risk-off concerns due to worries over Eurozone debt levels and weakness in India's external sector yanked the rupee nearly 14% lower.

The ongoing war, meanwhile, is the most severe energy supply disruption in decades, sending oil prices soaring and curtailing 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 1.7%, while the yield on the 10-year benchmark bond surged as much as 9 basis points to 6.96%, the highest since August 2024.

State-run banks were spotted offering dollars in the foreign exchange market but their presence was quite mild, a trader at a private bank said. Bankers reckon that easing central bank defence could leave the rupee exposed to sharper swings.

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 ground 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.

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.