No escape for the rupee also, it could slip below 91.50/$
While the Reserve Bank of India (RBI) is expected to provide support by selling dollars, prolonged volatility may force the central bank to implement more liquidity measures, especially ahead of advance tax outflows in March, bankers said. “It is safe to assume that the rupee will open weakly, most likely closer to 91.50 rupees per dollar.
But the RBI will also be present in the market to prevent a sharp decline so that the rupee can be expected to weaken beyond Rs 92 per dollar,” said Anshul Chandak, head of treasury at RBL Bank.
The renewed volatility comes as the local currency is showing some signs of recovery. In February, the Indian rupee strengthened, recording its first monthly gain since April 2025, as foreign inflows increased and the US trade deal was announced earlier in the month. The currency rose 1% to Rs 90.97 per dollar by the end of the month, helped by the RBI’s persistent dollar sales keeping the rupee above the psychological level of Rs 91 per dollar. Recent developments in West Asia could hurt the Indian currency, which is the worst performer in Asia in 2025. The currency had briefly touched an all-time low of Rs 92 per dollar in late January.
As US-Iran tensions escalate, this could have implications for both the rupee and yields, bankers said. “The Gulf of Hormuz is an important oil supply route not only for India but also for some other major markets. Oil prices can be expected to be affected, which will put pressure on the rupee. It is fair to assume that the RBI will avoid a sharp fall in the rupee, but how many dollars it will have to sell and for how long will this conflict continue. Government bond yields may also rise as the lack of demand is felt more acutely in the risk-off environment,” Ashhish said. Vaidya is head of treasury and markets at DBS Bank India.
The Gulf of Hormuz is a major route for global crude oil supplies, accounting for one-fifth of oil transportation. In particular, more than 60 percent of India’s oil supply from countries such as Saudi Arabia, Iran and the UAE comes from this route. Since India imports more than 89 percent of its crude oil, supply disruption could impact not only financial markets but also the real economy. “The longer this conflict goes on, the more it will hurt India. From India’s perspective, one can only hope that it does not spread too much or subsides in a few days, otherwise the pain could come true,” the private sector bank’s treasury head said. Government bond yields are also likely to rise as traders shift their positions, citing global uncertainties.
India’s 10-year benchmark bond fell 4 basis points this month to close at 6.66% on Friday, after rising for three consecutive months.
Bond yields have already been hit by higher-than-expected gross borrowings of Rs 17.2 lakh crore for the 2026-27 financial year, which now has to contend with a fresh geopolitical crisis.
