Indian Rupee Weakens Past 86.50 Against US Dollar Amid Global Uncertainty

Image Source : National Herald

The Indian rupee has depreciated past 86.50 per US dollar for the first time in over two months, reflecting heightened volatility in global markets. The decline comes amid rising crude oil prices, foreign institutional investor (FII) outflows, and escalating geopolitical tensions, particularly the ongoing Iran-Israel conflict.

Key Factors Behind The Rupee’s Decline

- The rupee fell 18 paise to 86.24 per dollar on June 17, marking a two-month low
- Crude oil prices surged nearly 4 percent, with Brent crude settling at $76.45 per barrel, increasing India’s import costs
- The Iran-Israel conflict entered its sixth day, fueling risk aversion among investors and impacting emerging market currencies
- The dollar index remained strong at 98.15, limiting the rupee’s ability to recover
- FII outflows from Indian equities further pressured the domestic currency, with analysts expecting continued volatility

Market Reactions And Economic Implications

- Exporters have been advised to continue selling dollars, as analysts predict the rupee could return to 85.50 levels once geopolitical tensions ease
- The Reserve Bank of India (RBI) is expected to intervene cautiously, balancing currency stability with inflation concerns
- A weaker rupee increases India’s import bill, particularly for crude oil, which could widen the current account deficit
- The depreciation may also impact inflation, with analysts estimating a 35 basis point increase in retail prices due to higher fuel costs

Future Outlook

The rupee’s trajectory will depend on global market conditions, including crude oil price movements, geopolitical developments, and RBI’s policy stance. While short-term volatility is expected, traders will closely monitor upcoming US Federal Reserve decisions and domestic economic indicators for further cues.

Sources: Financial Express, Moneycontrol, The Hindu Business Line.