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| Source:(Reuters) |
The Indian Rupee has come under pressure as tensions between India and Pakistan have escalated following India's air strike on terrorist camps in Pakistan on May 7.
Rupee Drops Sharply
On May 8, the Indian Rupee (INR) saw its biggest one-day fall in a month, slipping by Rs 1.30 in a single day. The Rupee opened at Rs 84.76 per US Dollar and closed at Rs 86.06, falling by about 1.5%.
The drop in value reflects the growing worry in financial markets about a possible wider conflict between the two nuclear-armed nations.
What’s Causing the Rupee to Fall?
There are multiple reasons why the Indian Rupee is weakening:
Geopolitical Tensions: After India carried out a strike on Pakistan’s terror camps, investor fears increased, and traders moved towards safer assets like the US Dollar.Oil Prices and Imports: India imports a large amount of crude oil, and payments are made in US Dollars. When tensions rise, oil prices often increase, putting extra pressure on the Indian economy and the Rupee.
US Dollar Strength: The US Dollar is getting stronger globally. The Dollar Index, which measures the dollar’s strength against six other major currencies, has gone back above 100, making the dollar more expensive and the Rupee weaker.
Recent Rupee Trends
Earlier this year, on February 2, the INR had hit a low of 87.62 per USD, its weakest level in a year. However, by early May, the Rupee had recovered slightly to around Rs 84.30 per USD, just before India’s air strike. Since then, the currency has once again started to weaken due to increased tensions.
As of today, the Rupee stands at Rs 85.55, down 1.5% from its value on the day before the strike.
How Is the RBI Responding?
To reduce the volatility in the currency market, the Reserve Bank of India (RBI) often steps in by selling US Dollars through state-run banks. This process is called intervention, and it helps control sharp falls in the Rupee’s value.
According to financial reports, the RBI likely intervened in the market on Friday to support the currency amid the ongoing tensions.
India’s foreign exchange reserves, which act as a safety net during currency shocks, rose by $1.98 billion to reach $688.13 billion in the week ending April 25. These reserves give the central bank the power to manage any sudden market movements.
Why This Matters
A weaker Rupee means higher costs for imports, especially for fuel, and may also lead to increased inflation in India. It could also impact Indian businesses and households that rely on imported goods or foreign travel.
At the same time, global investors may become cautious about investing in the Indian markets if tensions with Pakistan continue to rise.
