Rupee Drops 88 Paise to 85.71 Against Dollar in Biggest Fall in Two Years

Quick Summary

• Teh Indian rupee fell sharply, closing at 85.71 against the US dollar, down from 84.83 on Wednesday-a drop of 88 paise, marking its worst single-day fall as February 2023.
• The rupee initially rose in early trading but declined after India announced Pakistan had targeted multiple military locations in northern and western regions, prompting India’s response. This was perceived as an escalation of tensions and influenced market sentiment.
• Equity markets experienced a sharp decline following the declaration after being in positive territory earlier in the session.
• Dollar demand surged as importers hedged their positions due to geopolitical concerns and obligations under external commercial borrowings (ECBs).
• Forward premiums for dollar-rupee jumped noticeably; one-year implied yield rose by 16 basis points to a one-month high of 2.34%. Dealers forecast that further tensions could push the currency past the Rs 86 threshold against the dollar.
• Historical geopolitical conflicts like Russia’s invasion of Ukraine had also weakened India’s currency indirectly; however, direct involvement now amplifies risks for capital flows and investor sentiment around India’s markets.
• Brent crude prices were up by about 1% to $61.76 per barrel in futures trade on Thursday.

Indian Opinion Analysis
This steep fall in India’s currency underscores its vulnerability during heightened geopolitical tensions-especially when those directly involve India militarily or economically-coupled with fluctuations in global commodity and foreign exchange markets like oil prices and dollar index values which amplify this volatility further during sensitive interactions globally.