By Anna Mehta, Senior Economist at the Indian Institute of Finance (LinkedIn Profile)
MUMBAI, June 23, 2025 — The Indian rupee and government bond markets are set to face renewed volatility this week after a U.S. strike on Iran’s primary nuclear sites, raising fresh concerns over oil prices and potential conflict escalation in the Middle East. reuters.com
1. Why the Rupee Slipped
- Immediate Reaction: The rupee closed at ₹86.5850 per U.S. dollar on Friday, down 0.6% for the week, and is poised to open weaker after the weekend’s military action reuters.com.
- Oil Price Pressure: Brent crude futures jumped to $77 per barrel, up nearly 4% week-on-week, intensifying India’s import bill burden.
- Flight to Safety: “A flight to safety is likely to reinforce the dollar’s strength against the Indian rupee,” said Dilip Parmar, FX research analyst at HDFC Securities reuters.com.
2. Bond Yields on the Rise
- 10-Year Benchmark: India’s 10-year government bond yield (6.33% 2035) ended at 6.3087% on Friday, with traders expecting it to trade between 6.30%–6.40% this week reuters.com.
- Import Inflation: CR Forex estimates that a $10 per barrel oil spike could widen India’s current account deficit by 0.3% of GDP and erode real yields.
- RBI Intervention: Market players anticipate limited Reserve Bank of India (RBI) intervention to curb excessive volatility ahead of key data and a large IPO this week.
3. Offsetting Factors
- Stronger PMI: Flash HSBC India Composite PMI surged to 61.0 in June from 59.3 in May—its highest since April 2024—offering a counter-balancing signal of expanding domestic activity fxstreet.com.
- Fed Watch: Comments from U.S. Federal Reserve Chair Jerome Powell, due Tuesday, and June policy minutes from the RBI will be closely monitored.
4. What Happens Next?
- Near-Term Views: Analysts see the rupee testing the ₹87.50–87.60 range, with immediate support likely there. Beyond that, geopolitical headlines will remain the primary driver.
- Key Events This Week:
- June Flash PMI Releases (Manufacturing & Services) — June 23
- Powell Speech at the Economic Club of New York — June 24
- U.S. New Home Sales & Durable Goods — June 25–26
- RBI Policy Minutes Publication — June 26
Fact-Check
- Strike Confirmation: The U.S. Department of Defense confirmed the precision strike on June 21 targeting Iran’s Natanz and Arak nuclear facilities, with no credible reports of collateral damage beyond military assets.
- Oil Supply Risks: While Iran has threatened to close the Strait of Hormuz, no formal parliamentary resolution has been enacted; shipping remains unaffected at present.
Daily Digest
- Rupee Tracker: Live updates on ₹/USD and intraday volatility.
- Bond Bulletin: Yields, auction schedules, and foreign inflow snapshots.
- Oil Watch: Brent and WTI benchmarks, shipping lane alerts.
