Rupee Hits Record Low Amid Middle East Conflict; Central Bank Likely Steps In to Stabilize Currency
MUMBAI, March 4, 2026 – The Indian rupee plunged to an unprecedented low against the U.S. dollar on Wednesday, breaching the 92 mark for the first time in history. The sharp depreciation comes amid escalating conflict in the Middle East, which has thrown global markets into turmoil. Observers say the Reserve Bank of India (RBI) is likely intervening to stem further losses in what has become Asia’s worst-performing currency this year.
The rupee fell to 92.3025 per dollar, down approximately 0.9% on the day and surpassing its prior record low of 91.9875 set in January. Since the start of 2026, the rupee has shed over 2% against the dollar, marking the steepest decline among Asian currencies and highlighting the pressures it faces in emerging markets after a roughly 5% drop in 2025. ### Middle East Conflict Fuels Currency Weakness and Market Volatility
The intensifying war in the Middle East is amplifying concerns over inflation, economic growth, and India’s current account balance. India imports more than 80% of its crude oil from the region and depends significantly on remittances from its diaspora in Middle Eastern countries. The conflict’s disruption risks pushing oil prices higher and jeopardizing inflows from these remittances.
Heightened risk aversion linked to the conflict has also led foreign investors to withdraw from Indian equities and bonds. On Wednesday, India’s benchmark equity index, the Nifty 50, fell nearly 2%, while the yield on the country’s 10-year government bonds rose 4 basis points to 6.717%. This selloff extended across Asia, with South Korean shares plummeting more than 10% and the South Korean won hitting a 17-year low. Meanwhile, Brent crude oil prices have surged over 13% since the weekend as the Middle East war erupted.
Central Bank Likely to Intervene
“The Middle East conflict is acting as a catalyst but the broader trend for the Indian rupee has clearly been on the weaker side,” said Tanay Dalal, senior vice president for business and economic research at Axis Bank. He added that the RBI would need to continue its efforts to smooth out the rupee’s weakness to prevent second-round volatility effects until a more sustainable balance between financial inflows and outflows is achieved.
Market participants believe the central bank’s intervention could include currency market operations aimed at limiting the rupee’s slide and stabilizing investor sentiment.
External Factors Weighing on Rupee
The oil price shock is compounding challenges for the rupee, which was already under sustained pressure before the Middle East conflict intensified. The conflict has overshadowed earlier optimism about a potential U.S.-India interim trade deal, which markets had hoped might provide some relief through tariff reductions that could bolster exports and ease pressures on India’s external balance.
Analysts at Kotak Mahindra Bank noted that remittances and capital flows from the Middle East are likely to be adversely affected if the regional conflict persists. They cautioned that a prolonged crisis would undermine India’s macroeconomic outlook by widening the current account deficit, fueling inflation, accelerating rupee depreciation, and slowing GDP growth.
Indian Economy Faces Uncertain Outlook
While the Indian economy has continued to grow at a steady pace with relatively contained inflation, the ramifications of an extended Middle East conflict could destabilize this equilibrium. The dependence on imported energy, combined with capital outflows and reduced remittance inflows, presents significant economic and financial headwinds.
As global geopolitical tensions remain high, the coming weeks will be critical in determining how India manages its currency stability and economic resilience amid these external shocks.
Reporting by Jaspreet Kalra and Nimesh Vora in Mumbai; Editing by Mrigank Dhaniwala and Ronojoy Mazumdar.