Rupee may slip further if Middle East tensions persist: Naveen Mathur

The Indian rupee remains under pressure amid escalating geopolitical tensions and a sharp surge in global crude oil prices, with currency markets closely watching the next move by the Reserve Bank of India (RBI). As the dollar strengthens globally and oil-import demand rises, traders expect continued volatility in the domestic currency.

The rupee is currently hovering around the 92.2 mark against the US dollar, reflecting growing concerns about India’s import bill and external balances. The spike in crude prices, triggered by the intensifying conflict in the Middle East, has added to the downside risks for the currency.

Speaking on the outlook, Naveen Mathur from Anand Rathi Share said the rupee could weaken further in the near term if geopolitical tensions persist and oil prices remain elevated.

“The rupee has a depreciative stance, as I said earlier too in the call. The rupee is at around 92.21. A further fall to an extent of 92.30 or 92.40 is looking like a possibility. Sharp escalation in the Middle East conflict and the soaring crude oil prices would definitely be a dampener for the rupee against the dollar,” he said.

He pointed out that the currency had earlier found some support due to intervention by the central bank, but global developments have once again tilted the balance against the rupee.

“We did see the RBI intervention last week, which held the rupee against the dollar to around 91.50 levels. But post that, the escalation in the Middle East is putting pressure on oil, and WTI and Brent are quoting at around $114 a barrel, which is plus $25 a barrel just in the opening session,” Mathur said.
According to him, the combination of higher crude prices, geopolitical uncertainty and a stronger US dollar is weighing heavily on emerging market currencies, including the rupee.“The rupee depreciative stance is a possibility to continue in the near future until and unless we see a major positive development on the Middle East tensions. The dollar is also appreciating. The dollar index is at around 99.60 from the lows of around 95 two months earlier. The dollar appreciation, crude, and Middle East tensions are all putting pressure on the rupee on the downside,” he added.

Another key factor that could intensify pressure on the rupee is rising demand for dollars from oil marketing companies (OMCs), which typically increase their purchases when crude prices rise.

“Exactly, it would be the case. The dollar demand would be there, which would be a further dampener to the rupee against the dollar. RBI intervention would be expected to hold the rupee,” Mathur said.

However, he noted that the central bank’s focus remains on managing volatility rather than defending a specific exchange rate level.

“The RBI has said that they would not see any particular level for the rupee against the dollar. They would maintain volatility, or rather curb volatility. At the same time, imports, the fiscal deficit, and the current account deficit would be the key to watch out for, and hence RBI intervention would be critical,” he said.

He also suggested that state-run oil companies and large public sector firms may step up their dollar purchases in the current environment.

“I am sure that the ONGCs or the PSUs of the world would definitely be looking for dollar buying at this stage,” Mathur noted.

Whether the RBI will step in again to support the rupee remains uncertain, especially with global currency flows currently favouring the dollar.

“Anybody’s guess, but it would be the decision of the RBI monetary policy stance to hold the rupee at a certain level. If that is the case, the RBI might intervene before the rupee sees further depreciation against the dollar,” he said.

For now, the trajectory of the rupee will likely depend on how the geopolitical situation unfolds, along with the movement in crude oil prices and the strength of the US dollar in global markets.