The Indian rupee has reached record lows near 97 per dollar, marking a dramatic escalation from Thursday's recovery when it ended at 96.20, gaining 0.64% from its previous close of 96.82. According to Reuters, market participants estimate that the Reserve Bank of India is intervening aggressively in currency markets to stabilise the rupee, which has emerged as one of the world's weakest performers since crude supplies tightened amid the Middle East conflict. Prime Minister Narendra Modi has reduced the size of his official motorcade to conserve fuel, while authorities have urged citizens to curb overseas travel and reduce gold purchases to help ease pressure on the rupee. The currency has snapped its losing streak on Thursday, driven largely by aggressive pre-market dollar selling from the Reserve Bank of India that continued through the session, as reported by traders, but the latest developments show the intervention efforts have intensified significantly.
Asian economies are implementing emergency measures as currencies weaken and fuel costs surge, with the rupiah weakening to around 17,700 per dollar, while the rupee is approaching the 97-per-dollar mark and the Philippine peso is nearing 62 against the dollar. According to Reuters, Asia's heavy dependence on oil shipments through the Strait of Hormuz has left economies particularly exposed after disruptions linked to the escalating Middle East conflict tightened crude supplies. The region purchases nearly 80% of the oil transported through the strategic waterway, making rising energy prices a direct threat to inflation, growth and financial stability. Indonesia has delivered a surprise 50-basis-point interest rate hike to defend the rupiah, while also tightening control over commodity export earnings to ensure proceeds remain within the domestic financial system. The Philippines has also entered tightening mode, with its central bank already raising interest rates and markets anticipating further action if inflation continues to accelerate due to rising fuel prices.
The combination of higher oil prices and shifting expectations for U.S. interest rates is worsening the situation for emerging Asian economies, with investors increasingly pricing in the possibility that the U.S. Federal Reserve may keep rates elevated for longer or even consider another hike, strengthening the dollar and accelerating capital outflows from developing markets. Brent crude oil futures gained $1.39 to $106.4 a barrel on Thursday, according to Reuters, showing continued recovery from earlier levels. The recovery in crude oil prices has also had a ripple effect on the demand for the Indian rupee, and considering India imports 80% of its crude oil from foreign countries, especially from the Gulf nations, any positive move tends to support the domestic currency rate, as reported by PTI. Forex traders are still cautious in understanding the geopolitical risk with any potential flare-up in the West Asia tensions or rise in crude, with the Middle East conflict remaining a key concern for currency stability.
Investment banks are increasingly recommending investors favour relatively stronger Asian currencies such as the Singapore dollar, Malaysian ringgit, Chinese yuan and South Korean won over weaker currencies including the rupee, rupiah and Thai baht, according to Reuters. Market strategists believe more rate hikes may be necessary across parts of Asia if currency weakness persists, however, tighter financial conditions could further hurt consumption and investment at a time when economies are already grappling with higher import costs. In India, attention has turned to the Reserve Bank of India's sizeable forward dollar positions, with the central bank's short forward dollar commitments having exceeded $100 billion, raising questions among investors about the sustainability of currency interventions despite India's large foreign exchange reserves. The uncertainty surrounding the Iran-U.S. conflict and global oil supply remains a major risk factor for Asian economies, with policymakers likely to remain under pressure as long as energy prices stay elevated and capital flows remain volatile.
Despite the rupee's recovery, foreign investors maintained their selling trend, shedding ₹1,597 crore worth of assets in a single day, according to NSE data released on Wednesday evening. However, the domestic investors purchased ₹1,968.35 worth of assets across exchanges, providing some support to the market. The broader picture shows net equity outflows in 2026 have already reached $23.2 billion, crossing last year's total of $18.9 billion. According to CR Forex Advisors MD Amit Pabari, when capital leaves in waves, currencies rarely stand still, and the rupee is bearing that full weight. Economists at HSBC estimate India could face a Balance of Payments (BoP) deficit of around $65 billion in FY27, marking a third consecutive year of external imbalance pressure.
