Indian Rupee drops back to 23 to dirham as markets weigh tensions with Pakistan

Dubai: The Indian rupee is softening to 23 against the dirham as the currency markets felt the ripples from the escalation of the conflict on the border. The INR had closed yesterday at 22.98.

So, it’s back to 23 plus levels for the rupee after its recent strengthening, and the next few days could be extremely fluid for the INR as geopolitical tensions play out.

Given the tensions in the Indian sub-continent, coupled with global trade uncertainties and expectations of RBI rate cuts, the Indian rupee is likely to face short-term depreciation," said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services.

"The USD-INR rate could move toward the 23.2-23.35 to dirham (85.25–85.75 for dollar) range over the next 1-2 months, as markets react to elevated regional risk, capital outflows, and a softer monetary stance by the Reserve Bank of India."

The main India stock market index also slipped initially after a fairly solid week. Trading has started with the index lower by 0.19% to 80,641 points. Then things returned to green territory.

Investors are still assessing whether there will be an across the board dip when it comes to key sectors.

"The Indian markets have opened on a jittery note," said Milan Vaishnav, Technical Analyst at ChartWizard.ae. "But, there is also a very resilient note in investor sentiments.

"The Nifty and the BSE Sensex opened around 0.70% lower, but soon recouped all their losses in the first 15 minutes of the trade. Now, all key indices trade in the positive, with the Nifty Bank index strongly outperforming the broader markets, gaining 0.51%.

"Overall, it is strongly advised that Investors remain reactive to market developments and not become predictive.

"The zone of 23,950-24,050 remains a crucial support area for the Nifty, and so long as this zone is defended, the markets will consolidate and not show any major drawdowns.

"The FIIs have continued to be net buyers; they were net buyers to the tune of Rs37 billion yesterday."

It was in late November 2024 that the INR first dropped to 23. "Not just the India-Pakistan conflict, the other factor to weigh on the INR will be the US Federal Reserve's meeting today (May 7)," said Neelesh Gopalan, Senior FX analyst.

The lowest point for the Indian rupee was 23.94 on February 10, 2025.

Foreign flows have turned positive. Souring sentiment on the US, combined with improving growth expectations for the Indian economy, has led to a reversal in foreign institutional investor outflows, aiding the INR.

India is increasingly being viewed as a safe haven in the tariff turmoil, a primarily domestic driven economy with minimal exposure to US exports, strong growth prospects, low political risk and fair regulatory practices.

India’s macros look strong, with declining interest rates, declining inflation, and fiscal stimulus benefits in the pipeline. A further monetary boost is expected from the central bank via open market operations and rate cuts. Declining inflation has aided real interest rates.

India is also benefitting from moves by large multinationals to de-risk and diversify supply chains. Strong NRI remittances back to India have contributed to the INR appreciation. Alongside these factors, the central bank has continued to accumulate dollar reserves and intervened at times of volatility to ensure currency stability.

Also benefitting the move in the INR are lower crude oil prices, a dip in gold and silver imports, and weak dollar sentiment. Aiding the positive sentiment for INR is US’s preferred policy expectation of a weaker dollar.

- Amrita Farmahan, CEO of Ambit Global Private Client