Indian Rupee Outlook: Rupee hits new record low amid Iran war: Will INR drop to 100 vs US dollar?

Explained: What’s driving rupee’s fall and will it hit 100 vs US dollar?

With the rupee-dollar rate hitting new lows everyday, investors worry if the currency could weaken further toward the psychologically significant level of 100 per dollar.

Analysts say a surge in crude oil prices following the Iran war, persistent foreign portfolio investor (FPI) outflows, and global central banks choosing to keep interest rates steady, combined with weakening domestic economic fundamentals, are creating a “perfect storm” for the local currency. However, a drop to 100/dollar may not be on the cards.

“While where the rupee will go is uncertain – as it will depend on how much the dollar strengthens against other currencies and how much the Reserve Bank of India (RBI) intervenes in the market – the possibility of the INR reaching 100 versus the US dollar looks very unlikely,” said Madan Sabnavis, chief economist at Bank of Baroda.

According to him, such a fall would require an unusually strong surge in the US dollar globally, which would likely be countered by policy action, given the inflation risks associated with a steep currency fall.

Oil shock, external imbalances weigh on rupee

The rupee’s weakness is driven by a combination of global and domestic factors, with crude oil prices emerging as the swing factor.

Brent crude oil prices jumped as much as 65 per cent to $120 a barrel amid the Iran war, as supply concerns intensified following the blockade at the Strait of Hormuz, a key global oil transit chokepoint. In fact, despite the US President Donald Trump indicating a pause in strikes against Iran’s power infrastructure, Brent crude is holding $100 per barrel-mark.

For India, which imports over 85 per cent of its crude oil needs, this translates into higher dollar demand and a widening trade deficit.

“The Indian Rupee is currently a hostage to developments around the Strait of Hormuz. As long as disruptions or a hard lockdown scenario persists, it will keep energy prices elevated,” pointed out Anindya Banerjee, head of commodity and currency research, Kotak Securities.

This, he added, not only widens India’s trade deficit through higher oil import bills but can also trigger foreign capital outflows from both equity and debt markets, alongside speculative positioning against the currency.

“At the same time, importer demand for dollars tends to rise, while exporter hedging typically remains subdued, creating a demand-supply imbalance in the FX market,” Banerjee said.

Notably, foreign investors, including institutional and portfolio, have already sold Indian equities worth ₹1.07 trillion so far in calendar year 2026, NSDL data shows.

Consequently, the country’s balance of payments (BoP) – which is sum of current account (trade), capital account (non-financial assets), and financial account (financial assets, including equities and bonds) – is expected to stay in deficit for two straight financial years – a first for the Indian economy.

India’s BoP recorded a deficit of $24.4 billion at the end of Q3FY26. The deficit was $5 billion in FY25.

At the same time, domestic bond yields are inching up as they price in inflation concerns. India’s 10-year government bond yield rose to 6.839 per cent on Monday, up from 6.6 per cent pre-Iran war.

Globally, Kunal Sodhani, head of treasury at Shinhan Bank, said a “higher-for-longer” stance from the US Federal Reserve is attracting capital flows into US assets, leaving emerging market currencies, like the rupee, vulnerable.

“Though a move toward the 100 per USD-mark seems a bit unlikely to be linear, there cannot be a ‘never’ in the markets. Market participants, thus, need to be watchful,” he said.

Analysts also cautioned that though the RBI has been actively intervening to smooth volatility, it has already exhausted over $100 billion in forex reserves, leaving limited room for further support.

Rupee outlook: Key levels to watch

Anindya Banerjee of Kotak Securities said the rupee may slide to 96-97 per dollar in the worst-case scenario, where the Iran war-led disruptions extend into mid-April.

“A move toward 100 is not our base case at this stage. Importantly, once tensions ease and supply normalises, we could see a sharp correction in energy prices, which in turn should trigger a relief rally in the rupee,” he said.

Road ahead for investors: Hedging the forex risk

With volatility expected to remain elevated, Sodhani of Shinhan Bank suggested that importers increase hedge ratios on dips in USD/INR, while exporters adopt a staggered hedging strategy to benefit from favourable currency moves.

He advised market participants to actively monitor forward premiums and global rate cycles.

“Importers should prefer option-based hedging strategies, which provide protection against further rupee depreciation while retaining upside in case of a reversal. Exporters should utilise spikes toward 95-96 and beyond to build forward hedges for the April-June quarter, gradually locking in favourable realisations,” Anindya Banerjee of Kotak Securities advised, adding 92.5-93 remains a strong support zone for USDINR, while 95-96 are key resistance levels.

Anil Kumar Bhansali of Finrex Treasury Advisors said importers should buy US dollars, while exporters should hedge very slowly and take their receivables at the Cash/Spot price only.

========= Disclaimer: View and outlook shared belong to the respective analysts and are not endorsed by Business Standard. Readers’ discretion is advised.

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