Iran war has distorted the movement of rupee, will it become more miserable now?

Rising tensions in the Middle East and rising crude oil prices have dented the Indian rupee's performance. On Wednesday, the Indian currency hit an all-time low against the dollar. 

Due to the dollar's strengthening overseas and continued foreign capital outflows, the rupee fell 18 paise to a record low of 92.58 against the US dollar. Meanwhile, US firm Goldman Sachs has predicted that the rupee could reach 95 this year.

Forex traders said higher global crude oil prices amid escalating conflict in West Asia further weakened market sentiment. 

The local currency opened at 92.42 against the dollar at the interbank foreign exchange rate and remained in a range of 92.46-92.47 before falling to 92.58.

On Tuesday, the domestic currency had hit its previous lowest intra-day level of 92.47 against the dollar, after which it closed at an all-time low of 92.40.

The rupee hit a new low ahead of central bank meetings as the Reserve Bank of India allowed it to breach the 92.50 level, Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, said in a PTI report.

Growth forecast

Goldman Sachs last week cut its growth forecast for India this year to 6.5% from 7% and raised its inflation forecast by 30 basis points. It projected the current account deficit would widen by 0.8 percentage points to 1.2% of GDP this year, starting in 2025.

Shantanu Sengupta, chief economist at Goldman Sachs, said that the Indian government is using fiscal policy to cushion the economy from the energy crisis, so the RBI won't need to take any immediate action, 

but it will likely provide liquidity support. He added that there's a risk of bond supply increasing in the next fiscal year, starting in April, depending on how long the conflict lasts and oil prices.

Iran-Israel War