Commerzbank’s Charlie Lay highlights that the Indian Rupee has weakened as global Oil prices surge, pushing USD/INR above 92.00 for the first time. India’s heavy Oil import dependence and shifting supply mix toward the Middle East keep downside pressure on the Rupee, though large FX reserves and stable macro fundamentals allow the RBI to smooth volatility and keep USD/INR in a broad 90–92 range near term.

Rupee weighed by higher crude costs

"The Indian rupee has weakened sharply in recent sessions amid the spike in global oil prices, with USD-INR closing above 92.00 for the first time yesterday."

"Higher crude prices increase the import bill and stronger demand for USD from oil importers, hence placing downward pressure on the rupee."

"However, with pressure to reduce purchases of Russian oil under the evolving trade deal with the US, Russia’s share could fall toward 25-30%, while Middle Eastern supply may rise again to around 50-55%."

"The current account deficit is projected to remain contained at around 1.0–1.2% of GDP in FY2025-26, while the fiscal deficit is expected to narrow slightly to around 4.3% of GDP in FY2026-27 from 4.4% for the current fiscal year."

"As such, RBI is unlikely to panic or target a stronger rupee but will probably continue leaning against excessive volatility. With strong reserve buffers and relatively sound macro fundamentals, the central bank has the capacity to smooth market pressures. USD-INR could consolidate in the 90-92 range near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)