The rupee gave up most of the gains accrued on Friday following steps to attract foreign inflows as international crude oil prices spiked on Monday after hostilities between Iran and Israel escalated. The selloff in domestic equities also weighed on the Indian unit.
The domestic currency closed at 95.71 per dollar, down 0.8 per cent from its previous close of 94.94 per dollar, marking its steepest single-day decline in four weeks. The Indian unit, which has depreciated 6.1 per cent against the dollar in 2026, was one of the worst-performing Asian currencies on Monday.
The fall came after the rupee had recorded its strongest single-day gain in two months on Friday following a series of measures by the government and the central bank aimed at boosting foreign portfolio investment.
Market participants said the initial optimism surrounding the capital inflow package was overwhelmed by adverse global cues.
“The Indian rupee erased most of its Friday gains as escalating Middle East tensions fuelled a surge in crude oil prices and safe-haven demand for the greenback,” said Dilip Parmar, research analyst, HDFC Securities.
“Additionally, robust US jobs data has revived expectations that the FOMC may raise interest rates, further dampening risk appetite and boosting the US dollar. In the near term, spot rupee is expected to consolidate within a range of 94.50 to 96.50,” said Dilip Parmar, research analyst, HDFC Securities.
Brent futures opened sharply higher on Monday and surged more than 4 per cent to $96.86 per barrel amid escalating tensions in West Asia. At one point, they rose to $98 a barrel.
At the same time, stronger-than-expected US labour market data strengthened expectations that the US Federal Reserve could tighten monetary policy further this year, pushing Treasury yields higher and boosting the dollar. Elevated US yields tend to reduce the appeal of emerging-market assets and exert pressure on currencies such as the rupee.
The yield on the benchmark 10-year US Treasury bond rose to 4.57 per cent, against the previous day’s 3.89 per cent.
Domestic equities also remained under pressure, with benchmark indices falling to two-month lows amid a broader rout across Asian markets. Foreign investor outflows and risk aversion added to pressure on the local currency.
Traders said speculative dollar selling earlier in the day provided some support to the rupee, but corporate dollar demand and foreign portfolio outflows outweighed those flows.
“There was some intervention in the morning, but the large outflows negated the dollar buy,” said a dealer at a state-owned bank. The rupee has fallen 10.5 per cent against the dollar in the last one year.
On Friday, the Indian central bank announced a series of measures to attract foreign capital, including temporary incentives for banks to mobilise FCNR(B) deposits, hedging-cost support for certain overseas borrowings and wider foreign investor access to government securities under the Fully Accessible Route. Analysts estimate these steps could eventually attract $30-50 billion of inflows into the country. The government also decided to exempt foreign portfolio investors (FPIs) from income tax on interest and capital gains earned from government securities, with effect from 1 April 2026 — a move that will make investment in sovereign papers attractive.
Market participants, however, cautioned that the effectiveness of the measures would depend on the global backdrop. Continued geopolitical tensions, elevated oil prices and expectations around US interest rates are likely to remain key drivers of the rupee in the near term.
Additionally, even if the tensions in the Middle East are set aside, several other risks remain on the horizon, including the possibility of an AI-driven market bubble bursting, stress in the private credit market and the impact of a weak monsoon on the domestic economy.
Meanwhile, government bond yields softened on Monday despite the rise in crude oil prices and US yields on hopes of foreign inflows on the back of measures announced on Friday. The yield on the benchmark 10-year government bond settled at 6.96 per cent, against the previous close of 6.98 per cent.
