Indian Currency Slips: May Test ₹87 Mark Amid Worldwide Instability

Indian Currency Slips: May Test ₹87 Mark Amid Worldwide Instability

The Indian rupee is under significant pressure due to rising global tensions, surging crude oil prices, and strong corporate demand for the US dollar. Currency experts believe the rupee could soon breach the crucial ₹87 per dollar level if these conditions persist. The combination of geopolitical risks and India’s dependence on energy imports has made the domestic currency highly vulnerable in the current scenario.

Geopolitical Tensions Drive Rupee Weakness

The recent escalation of the Israel-Iran conflict has created global uncertainty, pushing investors to shift their capital into safe-haven assets like the US dollar. This move has weakened several emerging market currencies, including the Indian rupee. The rupee has been on a continuous downward path in recent weeks, declining from ₹85.60 in the beginning of June to ₹86.72 by June 19, 2025.This sharp decline marks the rupee’s weakest point in nearly three months.

Experts caution that if the geopolitical tensions worsen or if the conflict spreads further, the rupee may break past the ₹87 mark. The ongoing instability has already led to concerns about the supply of crude oil, a commodity India heavily relies on.

Oil Prices Continue to Push Import Costs Higher

India is particularly sensitive to fluctuations in crude oil prices, as the country imports around 85% of its energy needs. The ongoing tensions in the Middle East have driven crude oil prices higher, with Brent crude nearing $79 per barrel recently. Analysts have warned that a $10 per barrel rise in crude oil prices could increase India’s current account deficit by approximately 0.3% to 0.4% of GDP.

A wider trade deficit forces India to spend more foreign currency on oil purchases, further increasing the demand for dollars and pushing the rupee down. The Indian rupee is likely to remain under stress as oil prices hold at higher levels.

Increased Dollar Demand from Indian Corporates

Apart from geopolitical concerns, the rising corporate demand for dollars is also contributing to the rupee’s weakness. Several Indian companies are actively purchasing dollars to cover their import payments and hedge against further rupee depreciation. This has created a strong demand for dollars within the domestic market.

The situation is further complicated by foreign investors pulling out funds from emerging markets amid growing global uncertainties. With capital outflows intensifying, the rupee faces additional downward pressure, increasing the likelihood of breaching ₹87 per dollar.

RBI Likely to Monitor and Intervene if Needed

The Reserve Bank of India (RBI) generally allows the rupee to move in line with market forces, but the central bank has a history of stepping in if volatility becomes excessive. With over $699 billion in foreign exchange reserves, the RBI is well-positioned to intervene if the rupee’s fall accelerates beyond acceptable levels.

Analysts believe the RBI may not aggressively prevent the rupee from touching ₹87 but will act to limit sharp fluctuations that could create panic in the financial markets. The central bank’s intervention could temporarily stabilize the currency, but broader global factors will still dominate the long-term direction.

Potential Support from Upcoming IPO Inflows

One positive development that could offer temporary relief to the rupee is the upcoming large initial public offerings (IPOs) in India. The upcoming ₹1.5 billion IPO of HDB Financial Services is likely to draw significant interest from foreign portfolio investors. These inflows could help ease the pressure on the rupee in the short term by bringing in fresh dollars.

However, market participants note that such support may not last unless crude oil prices fall or the geopolitical environment improves. Unless a stable and favorable change occurs, the weakness of the rupee is likely to continue.

Near-Term Outlook: Monitoring Key Levels

According to currency analysts, the rupee is expected to fluctuate between ₹86.00 and ₹87.50 in the short term. Should the rupee firmly cross the ₹87 level, it may head towards ₹88 unless the Reserve Bank of India intervenes or new foreign investments enter the market.

Traders are also keeping a close watch on the global crude oil market, as any movement beyond $80 per barrel could trigger another round of rupee weakness. Additionally, the continuation of foreign capital outflows and persistent dollar demand from Indian corporates will further shape the currency’s trajectory.

Conclusion

The Indian rupee is currently navigating through a challenging environment dominated by external risks and domestic dollar requirements. While there are potential stabilizers like IPO inflows and RBI interventions, the overall outlook remains cautious. A further rise in oil prices or worsening geopolitical tensions could see the rupee crossing ₹87 per dollar soon. Market participants, businesses, and policymakers will need to stay vigilant as these critical factors continue to unfold.

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