Why Your Fuel Bills Are About to Soar

The foreign exchange market was closed on Thursday for Gudi Padwa. However, in offshore markets, the rupee on Thursday had already breached 93-per-dollar following Israel’s attack on South Pars, the world’s largest natural gas field located between Iran and Qatar. Iran retaliated by hitting a host of energy sites across the region, including Qatar’s Ras Laffan Industrial City, the world’s biggest liquefied natural gas (LNG) facility.

“If oil prices stay where they are, then 94 or 95-per-dollar is certainly a possibility,” said Dhiraj Nim, Economist and FX Strategist at ANZ. “It won’t be a direct reach to 95 and it may not happen by the end of March itself. The situation is fluid and the Reserve Bank of India (RBI) will pick and choose when it wants to intervene. But if oil stays at $100 per barrel or above, the rupee will move lower.”

After a fairly hands-off first half of 2025-26 which saw the RBI sell a mere $44 billion of foreign currency on a gross basis to defend the rupee – compared to nearly $400 billion in 2024-25 – the Indian central bank has had to become more proactive starting October 2025. In the last three months of 2025, the RBI sold $82 billion of foreign currency in the spot market on a gross basis, as per latest data. Its foreign market intervention has likely picked up even further in 2026, with the rupee – which breached 90- and 91-per-dollar levels in December in the face of heavy outflows from financial markets – down 4.1% against the dollar so far in 2026 and 2.9% since the war began on February 28.

In a sign of the RBI’s attempts to reduce exchange rate volatility, the central bank’s foreign exchange reserves were down $11.7 billion on March 6 – the biggest weekly fall since November 2024. Data released on Friday showed that the reserves were down another $7.1 billion as on March 13 to $709.8 billion – the lowest in nearly two months.

Back in October, the RBI – which cut the policy repo rate by 125 basis points (bps) in 2025 – had disclosed that its inflation and growth forecasts assumed $70 per barrel as the price of India’s crude oil basket for the second half of 2025-26. However, after staying below that level from October 2025 to February 2026, the average price of the basket has shot up to $117.09 per barrel in March, according to data from the Ministry of Petroleum and Natural Gas’s Petroleum Planning & Analysis Cell.

With risk aversion on the rise due to the war in West Asia, foreign investors have been rapidly pulling out money from emerging markets such as India, which further pressures the Indian rupee. So far in March, foreign portfolio investors have pulled out a net $11.3 billion from Indian equity and bond markets – the most since a net outflow of $11.5 billion in October 2024.

The rupee’s continued fall means it is now more than 6% weaker than the RBI’s October 2025 assumption of 88-per-dollar for the second half of 2025-26. The central bank, which makes public its macroeconomic assumptions for its growth and inflation forecasts only twice a year, had said back then that if the rupee depreciates by 5% over its baseline level, inflation could rise by around 35 basis points (bps) and GDP growth could benefit by around 25 bps through the exports channel in the short term. As such, the sharp rise in crude prices and the accompanying rupee depreciation is likely to complicate the RBI’s interest rate decision next month when its Monetary Policy Committee meets from April 6-8. Economists expect the repo rate to be retained at 5.25% given the heightened global uncertainty.