Rupee hits record low near 92 as Middle East tensions escalate - Key reasons EXPLAINED

Middle East tensions: The Indian rupee fell to a record low on Friday and posted its steepest weekly decline over three weeks, as tensions escalate in the Middle East.

The rupee came within a hair's breadth of the 92.00 level on Friday, slipping to an all-time low of 91.9650. The currency then settled down 0.34 per cent at 91.94, taking its losses for the week to 1.18 per cent and for the month to 2.3 per cent.

Its underperformance this week was even more telling, given that most Asian peers posted modest gains against a weakening dollar index amid U.S. President Donald Trump's threats regarding Greenland and his subsequent retraction, Reuters reported.

"This is largely a repeat of what we saw through most of 2025. The rupee stays under pressure regardless of broader cues," said Kunal Kurani, vice president at Mecklai Financial Services, as quoted by Reuters.

The rupee remained under pressure throughout the week and month, with foreign investors continuing to reduce equity investments, while importers and corporate firms increased their hedging, anticipating a further decline.

Meanwhile, exporters slowed dollar sales in the forward market, reducing supply and increasing pressure on the currency.

Regular intervention by the Reserve Bank of India has helped mitigate losses, although it has failed to reverse the underlying trend.

Bankers said the central bank intervened significantly on at least two occasions this week, selling dollars in the spot market and executing buy/sell swaps to manage liquidity.

Indian equities remained under pressure amid persistent foreign selling, making it difficult for the RBI to stem the rupee's decline. The Nifty 50 index fell 2.5 per cent this week, while foreign outflows from Indian equities reached nearly USD 3.5 billion in January.

The new volatility comes just as the local currency was showing some signs of improvement. In February, the Indian rupee gained for the first time since April 2025 due to increased foreign inflows and the announcement of a US trade deal earlier in the month. Continued dollar sales by the RBI helped the rupee stay above the psychological level of 91 rupees per dollar, closing the month up 1 per cent at 90.97 rupees per dollar. Recent events in West Asia could hurt the rupee.

Bankers said that increasing tension between US and Iran could impact both the rupee and yields.

"The Gulf of Hormuz is a key supply way for oil not only to India but also to some other large markets. One can expect oil prices to be impacted, which will pressure the rupee. It is fair to assume that the RBI will prevent a sharp fall in the rupee but how much dollars they will have to sell and for how long will be determined by the length of time this conflict continues. Government bond yields could also rise as lack of demand will be felt more acutely in risk off environment," said Ashhish Vaidya, head of treasury and markets at DBS Bank India, as quoted by ET.