Indian currency has seen its worst phase so far in the international market. On Friday, the rupee crossed the level of 93 against the dollar. This is the biggest fall of the rupee in a single day in the last four years. The rupee, which was at the level of 92.63 on Wednesday, fell and closed at 93.71 on Friday. In this entire week, the rupee has fallen by 1.3 percent, which is the sharpest fall since the end of 2022.
The biggest reason behind this huge decline is the ongoing tension at the international level. Global energy supply has been badly affected due to the Iran war. India is the third largest oil importer and consumer country in the world. When crude oil prices increase in the international market, India's import bill increases directly. This week, crude oil prices touched the dangerous level of $120 per barrel. However, when some countries took the initiative to ensure safe movement of ships through the Strait of Hormuz, the prices fell slightly to $110 on Friday. Despite this, there remains a steady demand for dollars from local oil marketing companies. The rupee has fallen by about 3 percent since the start of the Iran war.
This sudden surge in oil prices has created huge panic in the stock market as well. The confidence of foreign investors in the Indian market is wavering. In this month alone, foreign investors have withdrawn a huge amount of more than 8 billion dollars from the Indian stock market. This is the biggest withdrawal after January 2025. Due to such rapid outflow of foreign capital, the pressure on the local currency has deepened. If we look at the figures of the last one year, the rupee has weakened by about 8 percent against the dollar. The position of the Indian currency has weakened not only against the dollar but also against the Euro, British Pound and Chinese Yuan.
Looking at the current situation, there is an atmosphere of uncertainty in the market. According to Vivek Rajpal, Asia macro strategist at JB Drax Honore, if this global conflict prolongs further, the rupee will become even more sensitive due to higher energy prices. If market experts are to be believed, the rupee may fall to the level of 95 per dollar. Trade tensions with the US and conflicts in key energy producing sectors have been creating problems for the rupee over the past year.
However, in the meantime, it is a matter of relief that the Reserve Bank of India (RBI) is keeping an eye on the situation. The continuous intervention in the market by RBI has played a big role in stopping the pace of decline of rupee. The result of this intervention is that despite this huge global shock, the Indian currency stands in a better position than other Asian currencies like South Korean won and Thai baht.
