Rupee Hits Record Low Amid US-Iran Tensions: What It Means for the Economy

Rupee's Decline Against the Dollar

Mumbai: The Indian rupee fell by 35 paise, closing at a historic low of 95.63 against the US dollar on Tuesday, primarily due to escalating tensions between the US and Iran, which have heightened risk aversion in global markets.

Forex analysts noted that the prevailing market sentiment is heavily influenced by concerns that the ongoing conflict, now in its tenth week, could exacerbate global supply issues. This follows President Donald Trump's dismissal of Iran's latest response to a US-supported peace initiative, labeling it as completely unacceptable.

Additionally, Prime Minister Narendra Modi's recent remarks about fuel conservation and reducing imports were seen as a subtle acknowledgment that India's trade deficit and balance-of-payments challenges could worsen if crude oil prices remain high.

In the interbank foreign exchange market, the rupee opened at 95.57 but quickly depreciated, reaching an all-time intraday low of 95.74 against the dollar.

The USD/INR pair ultimately closed at a record low of 95.63, down 35 paise from the previous day's close.

On Monday, the rupee had already dropped 79 paise, settling at its previous record low of 95.28 against the dollar.

Analysts predict that the rupee will continue to face downward pressure due to uncertainties surrounding US-Iran peace negotiations after the US rejected Iran's response to its peace proposal.

The rise in crude oil prices and a strengthening dollar may further weigh on the rupee. However, any intervention by the Reserve Bank of India (RBI) could provide some support at lower levels. The USD-INR spot price is anticipated to fluctuate between 95.30 and 96, according to Anuj Choudhary, a research analyst at Mirae Asset ShareKhan.

Meanwhile, the dollar index, which measures the dollar's strength against a basket of six currencies, was trading at 98.28, reflecting a 0.33 percent increase.

Brent crude, the global oil benchmark, surged by 3.09 percent to USD 107.43 per barrel in futures trading, raising concerns about supply disruptions and escalating energy costs.

IFA Global noted in a research report that the growing awareness of the dire energy situation, following PM Modi's advisory on Sunday to use fuel wisely and reduce Forex outflows, has unsettled the markets.

During a rally organized by the Telangana BJP in Hyderabad, PM Modi urged citizens to conserve fuel, delay gold purchases, and limit foreign travel, among other measures, to bolster the economy.

He emphasized the importance of reducing petrol and diesel consumption, promoting metro rail usage, carpooling, increasing electric vehicle (EV) adoption, utilizing railway services for parcel transport, and encouraging remote work to conserve foreign exchange amid the West Asian crisis.

Highlighting the need to save foreign exchange, Modi called for a one-year postponement of gold purchases and foreign travel.

On Monday, US President Donald Trump remarked that the ceasefire with Iran was at its "weakest" and on "massive life support," following his rejection of Tehran's proposal to end the prolonged conflict as "totally unacceptable."

Trump stated, "It is at its weakest... After reading that piece of garbage they sent us... It’s on life support, massive life support," during a press briefing at the Oval Office.

He added, "They think that I’ll get tired of this, or I’ll get bored, or I’ll have some pressure, but there’s no pressure, there’s no pressure at all. We’re going to have a complete victory."

In the domestic equity market, the Sensex plummeted by 1,456.04 points, closing at 74,559.24, while the Nifty fell by 436.30 points to 23,379.55.

Foreign Institutional Investors sold equities worth Rs 8,437.56 crore on Monday, according to exchange data.