Rising oil prices push Indian rupee to historic low Analysts: Central bank may restart intervention "script" from 2013

Due to the escalation of conflict in the Middle East pushing up oil prices, the Indian Rupee exchange rate has fallen to a historic low. Analysts are beginning to consider whether the central bank will pick up its policy toolbox from 2013 to support the currency. On Tuesday, the Rupee against the US Dollar fell by 0.4% to 95.4175, breaking the low of 95.3337 set on April 30. After Brent crude oil surged 5.8% on Monday, it is currently trading near $113 per barrel, and traders are closely watching the tense situation in the Middle East following the US-Iran conflict. The recent crackdown by the Reserve Bank of India on speculative bets only brought temporary relief, and the Rupee is under pressure again. The ongoing conflict in the Middle East has kept energy prices high, and foreign investors have already withdrawn $21 billion from the Indian stock market this year, exceeding the total outflow for all of 2025. These trends are putting pressure on the country's external financial situation. Economists from UBS Group, Tanvee Gupta Jain, wrote in a report, "The fundamental issue facing the Rupee remains the current account. Measures to increase capital inflows should be a key policy priority." The Swiss bank has revised its Rupee exchange rate forecast for the end of the fiscal year 2027 from the previous 94 Rupees to 1 US Dollar to 96 Rupees to 1 US Dollar. Analysts believe that to address these pressures, the Reserve Bank of India has the capability to utilize its policy toolbox from 2013, drawing from various measures taken during the "taper tantrum" shock to support the Rupee. These measures include: raising dollars from overseas Indians, restricting gold imports, and establishing special forex swap windows for oil marketing companies with daily demand of $250-300 million. At that time, as the Rupee fell below 60 Rupees to 1 US Dollar, the historical low at the time, the Indian central bank provided about $12 billion in funding to oil companies. Strategist Andre de Silva said, "The recent plunge of the Rupee to a historic low underscores that high oil prices are increasingly straining India's efforts to maintain external stability. The deteriorating trade dynamics, persistent outflow of foreign funds, and expanding international payment pressures have pushed the Rupee into a sustained depreciation channel, exposing deepening external vulnerabilities." The Reserve Bank of India has so far relied on selling dollars to defend the Rupee. India's foreign exchange reserves are about $700 billion, but around $103 billion of negative forward commitments (reflecting future dollar obligations) limit the central bank's operational flexibility. RBI Governor Sanjay Malhotra stated last Friday that although the impact of the Iran conflict presents challenges to India as a major oil-importing country, the recent signing of multiple free trade agreements should partially offset these adverse factors. At an event in Amsterdam, he said India's net capital account position should be better than last year.