Rupee among Asia’s most vulnerable currencies amid crude oil risks | Economy & Policy News
The Indian unit, Indonesian rupiah, Philippine peso, and Malaysian ringgit are among the most vulnerable Asian currencies due to their exposure to external financing pressures and rising import costs, Barclays said, warning that sustained strength in the dollar and crude oil prices could increase pressure on regional currencies and foreign exchange reserves.
MUFG said the rupee hitting 100/$ is in sight if the conflict in West Asia continues.
“We continue to view the Indian rupee as vulnerable across a range of scenarios on the Strait of Hormuz, with USD/INR likely moving towards 98.00 levels and even 100.00 is in sight if the conflict prolongs or escalates,” MUFG said, adding that its expectation assumes a de-escalation and baseline forecasts for USD/INR to trade between 95.00 and 96.00, implying INR weakening further against Asian and G10 currencies, including the euro, Japanese yen, and Chinese yuan.
The rupee depreciated over 6 per cent in 2026, with the pace of the fall becoming rapid after the war in West Asia started in late February.
“India was the biggest USD seller, both in spot and forwards, since the war began, followed by China and the Philippines,” a Barclays note said. The Reserve Bank of India sold $9.7 billion in the spot market in March, latest data showed, with a net short position in the forward book swelling to $103.06 billion at the end of FY26.
Noting that despite intervention, Asian countries’ foreign exchange reserves have not fallen significantly and reserve adequacy ratios remain relatively healthy, Barclays said, “Should the USD and oil prices continue to firm, the risk of a sharper drawdown will grow. We think the INR, IDR (Indonesian rupiah), PHP (Philippine peso), and MYR (Malaysian ringgit) would be most at risk.”
The report estimated that Asian central banks have sold around $33 billion in the spot market and a similar amount in forwards since the Middle East conflict intensified in March-April to support their currencies, although intervention has not yet turned aggressive.
“The two biggest gold holders in Asia are China and India and they have seen the value of their gold reserves drop by USD43.4bn and USD11.4bn, respectively, since the war began,” Barclays said.
India was the largest seller of dollars in both spot and forward markets during the period, followed by China and the Philippines, the report said. On the other hand, Singapore and Malaysia were net buyers of dollars.
The MUFG report attributed the expected underperformance of the rupee to a combination of weak capital inflows, a widening current account deficit, and the risk of energy supply disruptions if shipping through the Strait of Hormuz is affected.
It also flagged additional risks from a weak southwest monsoon, a possible “super El-Nino” event, and uncertainty around further increases in US Treasury yields.
MUFG said structural weakness in India’s balance of payments predates the Iran conflict, pointing to a sharp decline in net direct investment inflows as foreign investors increasingly repatriate profits from existing investments.
The report projected that the Reserve Bank of India may raise the repo rate by at least 50 basis points this fiscal year to 5.75 per cent in order to support the rupee and anchor inflation expectations. In more adverse scenarios, the terminal repo rate could rise to 6.25 per cent-6.75 per cent, it said.
According to MUFG, the RBI and the government are also likely to consider additional measures to support the rupee, including tighter restrictions on outward remittances, curbs on overseas direct investment by Indian companies, further increases in fuel prices, and foreign-currency bond issuance targeted at non-resident Indians.
