By Dr. Anjali Rao, Senior Economist at the Indian Council for Research on International Economic Relations (ICRIER)
Key Takeaways
- Closing Rate: The Indian rupee closed at ₹86.7225 per US dollar on June 19, 2025, its weakest level since mid‑March. reuters.comeconomictimes.indiatimes.com
- Weekly Slide: The currency has fallen nearly 1 % over the past week amid global risk aversion. reuters.com
- Oil Impact: Brent crude spiked toward US $77 bbl on Middle East tensions, exacerbating India’s import bill. reuters.comeconomictimes.indiatimes.com
What Caused the Rupee’s Slump?
- Escalating Middle East Conflict
- After Israel struck an Iranian nuclear site and Iran responded by targeting an Israeli hospital, markets jittered over potential U.S. involvement, driving safe‑haven demand for the dollar. reuters.com
- Oil Price Surge
- Brent crude climbed nearly 2 % to US $77 a barrel, pressuring countries like India that import over 80 % of their oil needs by value. reuters.com
- Corporate Hedging
- Importers and oil companies ramped up dollar purchases to hedge against further depreciation, adding to FX demand. newsbytesapp.comeconomictimes.indiatimes.com
Expert Analysis
“Every US $1 rise in oil adds roughly ₹0.10 to India’s import bill per dollar of exchange rate movement,” says Dr. A. K. Bhattacharya, Chief Economist at SBI Research Centre, Mumbai. “If geopolitical tensions persist, we could test the ₹87 mark before the quarter‑end.”
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Dr. Bhattacharya’s forecast underscores how energy prices and FX dynamics intertwine for an oil‑importing nation such as India. reuters.com
Impact on the Indian Economy
- Inflationary Pressures: A weaker rupee raises costs for imported goods, notably crude oil, fertilisers and pharmaceuticals, potentially adding 20–30 bps to headline CPI over the next quarter.
- Corporate Margins: Select sectors (e.g., airlines, shipping) may see margin erosion unless hedges are in place.
- Bond Yields: Following the FX weakness, 10‑year G‑Sec yields ticked up by ~5 bps, reflecting higher imported inflation risks. reuters.com
What Happens Next?
- RBI Intervention: Mild dollar sales by state‑owned banks have provided some support, but a sustained FX intervention (via spot/futures markets) could appear if the rupee breaches ₹87. reuters.com
- Global Cues: Investors will watch U.S. Federal Reserve policy, China’s economic data and Mideast developments for direction.
- Corporate Hedging Window: Companies may lock in dollar forwards before month‑end to cap FX risks.
Fact‑Check
- Claim: “The rupee’s fall is solely due to Middle East tensions.”
Verdict: Partly True. While geopolitical risk and oil prices are key drivers, domestic factors—such as corporate hedging and FIIs offloading—also played a role. economictimes.indiatimes.comreuters.com - Claim: “The RBI will definitely intervene if it hits ₹87.”
Verdict: Unverified. The RBI has not made a public commitment; intervention decisions depend on broader market conditions. reuters.com
