The Indian rupee weakened sharply on March 4, closing at a historic low of 92.15 against the U.S. dollar, breaching the psychological 92 mark for the first time. The decline came amid surging global oil prices and rising geopolitical tensions in the Middle East, which pushed investors toward traditional safe haven assets such as the U.S. dollar and gold.

According to market data, the rupee fell nearly 70 paise during the session, marking one of the steepest single day declines in recent months. The currency had closed at 91.47 in the previous trading session, before dropping to an intraday low of 92.31 during the day.

Traders indicated that the Reserve Bank of India (RBI) likely intervened when the currency approached its intraday lows, selling dollars in the market to prevent a sharper slide. Market participants have observed that the central bank had already stepped in earlier when the rupee was nearing the 91 per dollar level.

The pressure on the rupee comes against the backdrop of a rapidly escalating conflict in the Middle East. In recent days, Israeli and U.S. forces have intensified military strikes across Iran, prompting retaliatory drone attacks by Iran targeting U.S. missions in the Gulf region.

A critical escalation has been the shutdown of the Strait of Hormuz, one of the world’s most important oil shipping routes. The closure has disrupted global crude supply flows and triggered a sharp surge in oil prices. The development has particular significance for India because nearly 40 percent of the country’s energy imports pass through this strategic waterway.

Higher crude prices have historically exerted significant pressure on the Indian currency. As one of the world’s largest oil importers, India faces a direct increase in its import bill when global oil prices rise. This in turn widens the current account deficit (CAD) and increases demand for dollars in the domestic market.

If Brent crude were to climb toward 100 dollars per barrel, analysts believe the rupee could face further depreciation pressure.

Economists suggest that the central bank’s response so far has been measured. According to Lavanya Venkateswaran, Senior Economist at OCBC Bank, policymakers have adopted a calibrated approach to liquidity management, which gives them room to respond to external shocks.

“The growth picture has actually been on the stronger side, which is good, which gives policymakers a buffer to deal with counter cyclical policy,” she noted.

Despite such buffers, currency volatility remains a concern for international investors. Exchange rate movements directly influence foreign investors’ returns when converted back into dollars.

Sachin Sawrikar, Founder and Managing Partner at Artha Bharat Investment Managers, highlighted that if currency depreciation outpaces yield differentials in Indian assets, foreign portfolio investors may reassess their exposure.

“For foreign investors, currency volatility directly affects dollar adjusted returns. If depreciation outpaces yield differentials, it may deter portfolio inflows and potentially trigger FPI outflows,” he said.

Data compiled from market sources indicates that the Indian rupee has already emerged as the worst performing currency among emerging Asian economies this year, losing more than 2 percent on a year to date basis.