However, a sharp depreciation in the rupee is unlikely, as the RBI’s robust $699 billion forex reserves and an import cover of 11.5 months provide ample firepower to intervene and curb any excess depreciation.
| Photo Credit:
Andrii Sedykh
The rupee and government securities (G-Secs) markets on Monday are expected to feel the ripple impact of the US strikes on Iran amidst the ongoing war between Israel and Iran.
The rupee could open weaker on Monday vis-a-vis previous close of 86.5850 per US dollar. However, the Reserve Bank of India (RBI) is likely to intervene in the market to steady the rupee.
Arvind Kanagasabai, Executive Vice President (Head-Treasury), Tamilnad Mercantile Bank, opined that the rupee may open very weak on Monday, but RBI intervention is expected.
“So, at the most, it (the rupee) can go to 87.25. However, they (RBI) will start selling dollars,” he said, adding that the forex reserves (at $699 billion) give the Central bank the heft to curb volatility in the rupee’s movement against the dollar.
Amit Pabari, MD, CR Forex Advisors, observed that the rupee is likely to open weaker on Monday, but will not witness a runaway depreciation as RBI intervention is anticipated to curb excessive volatility. He expects the rupee to trade in a range of 86.80–86.90 per dollar.
Pabari noted that heightened tensions in West Asia following US airstrikes on Iranian nuclear sites have triggered a global risk-off mood and pushed crude prices higher on fears of supply disruptions via the Strait of Hormuz, which handles 20 per cent of global oil flows.
“For India—dependent on imports for over 85 per cent of its energy—this poses serious macroeconomic risks. A $10 per barrel rise in crude could widen India’s CAD (current account deficit) by 0.3 per cent of GDP and elevate inflation, eroding real yields,” he said.
However, a sharp depreciation in the rupee is unlikely, as the RBI’s robust $699 billion forex reserves and an import cover of 11.5 months provide ample firepower to intervene and curb any excess depreciation.
Yields of G-Secs are likely to harden on concerns that closure of the Hormuz strait by Iran could lead to a spike in global energy prices, constraining the monetary policy committee (MPC) from going in for a follow through repo rate cut in its next meeting.
Kanagasabai said G-Sec yields will go up as the inflationary effect of rising global crude oil prices may prompt the MPC to hold the interest rate steady at its next meeting amidst the “neutral” monetary policy stance.
Moreover, G-Secs will track US yields, which are expected to jump as US defence spends and support to Israel in the ongoing war with Iran could pressure its fiscal deficit.
Published on June 22, 2025
