India's Currency at Risk: Rupee May Dip to 100/Dollar Threshold Amid Persistent Oil Price Volatility

India's Currency Outlook Tied to Crude Oil Price, Says Axis Bank's Chief Economist

India's currency outlook is increasingly tied to the trajectory of crude oil prices, according to Axis Bank's chief economist, Neelkanth Mishra. He warned that the rupee could weaken to 100 per dollar if oil stays above $110 per barrel. In a worst-case scenario, the rupee's depreciation could be significant.

The local unit has fallen by 4.5% against the dollar since the war in West Asia began on 28 February, and 11% in FY26, hitting an all-time low of 95.1250 per dollar on 30 March. However, it later pared some losses following measures by the Reserve Bank of India (RBI) to limit banks' currency positions, curb derivative market trades, and tighten offshore rupee market bets to reduce speculative pressures and limit spillovers to the onshore market.

Mishra stated that the RBI's recent interventions managed to bring back $40 billion, potentially delaying rate-related defense of the INR by at least two months. This suggests that immediate rate hikes may not be necessary. The RBI is set to announce its first policy decision of the current financial year on Wednesday.

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A Mint poll of 10 economists and market participants expects the central bank's monetary policy committee to keep the repo rate steady at 5.25% as it shifts its focus to rising inflation and a possible slowdown in growth due to the ongoing West Asia conflict.

Mishra emphasized that the government's broader response to the ongoing global disruption has been assessed positively, particularly if the shock proves temporary. However, some degree of currency adjustment is inevitable if oil sustains above $100 per barrel. He cautioned against premature moves if prices ease, stating that the currency will need to weaken if oil prices are going to be $100, and the INR may need to go to 98 or 99.

The Indian rupee closed at 93.10 against the greenback on Tuesday. Mishra noted that the current macro shock involves adjustments across key variables, including a one-time adjustment on growth, inflation, and currency. However, he emphasized that India is better positioned than in past crises, stating that "compared to any other time in our history, I think we are the best prepared that we can imagine."

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Therefore, the currency outlook hinges on oil: if prices stay elevated, a gradual, RBI-managed depreciation towards 98-100 appears likely; if not, pressure on the rupee could ease just as quickly.