A likely spike in global oil prices, rising geopolitical uncertainties and risk off sentiment globally triggered by the US-Israel attack on Iran is expected to weaken the rupee below 91.50 on Monday.
While the Reserve Bank of India (RBI) is expected to provide support by selling dollars, prolonged volatility could force the central bank to introduce more liquidity measures, especially ahead of the advance tax outflows in March, bankers said. “It is fair to assume that the rupee will open weak, most likely closer to ₹91.50 per dollar.
But RBI will also be present in the market to prevent a sharp fall so one can expect the rupee in a way not to weaken below ₹92 per dollar,” said Anshul Chandak, head of treasury at RBL Bank.
Renewed volatility comes just when the local currency was showing some signs of revival. In February, the Indian rupee had strengthened to log its first monthly rise since April 2025 as foreign inflows had picked up, and the US trade deal announced earlier in the month. The currency gained 1 per cent in the month to end at ₹90.97 per dollar helped by persistent dollar sales by the RBI keeping the rupee above the psychological ₹91 per dollar mark. The latest developments in West Asia could hurt the India currency which was the worst performing in Asia in 2025. The currency had briefly touched an all-time low of ₹92 per dollar at the end of January.
Bankers said with the US-Iran tensions escalating, it could have ramifications for both the rupee and yields. “The Gulf of Hormuz is a key supply way for oil not only to India but also to some other large markets. One can expect oil prices to be impacted, which will pressure the rupee. It is fair to assume that the RBI will prevent a sharp fall in the rupee but how much dollars they will have to sell and for how long will be determined by the length of time this conflict continues. Government bond yields could also rise as lack of demand will be felt more acutely in risk off environment,” said Ashhish Vaidya, head of treasury and markets at DBS Bank India.The Gulf of Hormuz is a major pathway for global crude supply accounting for a fifth of oil transport. For India especially, more than 60 per cent of its oil supply from countries like Saudi Arabia, Iran and UAE comes through this route. With India importing more than 89 per cent of its crude, the supply disruption could impact not only the financial markets but also the real economy.
“The more long drawn this conflict becomes, the more it will hurt India. From India’s perspective one can hope that it does not spread too much or eases in a few days otherwise the pain could be real,” said a treasury head of a private sector bank. Government bond yields are also likely to spike as traders square their positions noting the global uncertainties.
India’s benchmark 10-year bond ended at 6.66 per cent on Friday falling 4 basis points this month after rising for three straight months.
Bond yields are already impacted by the higher-than-expected gross borrowing of ₹17.2 lakh crore for the financial year 2026-27 having to now contend with a new geopolitical crisis.
