India’s currency outlook is increasingly tied to the trajectory of crude oil price, Axis Bank’s chief economist Neelkanth Mishra said, cautioning 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. However, the central bank’s recent intervention in currency markets is expected to delay rate-based support for the currency by 1-2 months, Mishra said at a Kotak Private event in Mumbai on Tuesday.
His comments come at a time when 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. It later pared some losses following measures by the Reserve Bank of India 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.
“Given that they (RBI) managed to get back $40 billion because of those recent interventions, it potentially delays rate-related defence of the INR by at least two months,” he said, suggesting that immediate rate hikes may not be necessary.
The Reserve Bank of India is set to announce its first policy decision of the current financial year on Wednesday. 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.
According to Mishra, the government’s broader response to the ongoing global disruption has also been assessed positively, particularly if the shock proves temporary. However, some degree of currency adjustment is inevitable if oil sustains above $100 per barrel.
“…don’t let the currency weaken a lot, because the currency will need to weaken… if oil prices are going to be $100, then the INR may need to go to 98, 99,” he said, cautioning against premature moves if prices ease.
The Indian rupee closed at 93.10 against the greenback on Tuesday.
The current macro shock, he said, is not permanent but involves adjustments across key variables.
“There is a one-time adjustment on growth, there is a one-time adjustment on inflation, there is a one-time adjustment on currency,” he said.
However, India is better positioned than in past crises, he emphasized.
“Compared to any other time in our history, I think we are the best prepared that we can imagine,” he said.
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.
