Rupee below 92 against dollar amid Iran conflict: impact on inflation, economy; and silver lining for IT sector

For India, which imports nearly 80 per cent of its crude oil requirements, the implications are stark. A weaker rupee, rising import costs, mounting inflationary pressures and a potential recalibration of monetary policy now loom large. What began as a distant geopolitical confrontation is fast developing into a direct economic challenge for the country.

Threat of imported inflation

When the Indian currency depreciates, the first and most immediate casualty is the import bill. Crude oil, electronic components, fertilisers and industrial machinery — all priced in dollars — suddenly become more expensive. The burden then steadily shifts to businesses and households, pushing up inflation and eroding purchasing power. The threat of imported inflation is now increasingly becoming a reality.

A $1 rise in crude oil increases India’s annual import bill by roughly $1.5–2 billion, depending on total import volumes. This directly widens the current account deficit (CAD). India’s CAD increased to $ 13.2 billion (1.3 per cent of GDP) in the third quarter of 2025-26 from $ 11.3 billion (1.1 per cent of GDP) in the same period of last year, according to the RBI data. “Our calculations show that every $10 move in oil prices can raise the current account deficit by 0.35% of GDP, with the impact on inflation (20-30 bps) contingent on the extent of pass through to the retail prices,” said Radhika Rao, senior economist and executive director, DBS Bank.

“Energy-intensive industries, including aviation, logistics, paints and chemicals, are likely to experience margin compression due to rising input costs, while upstream oil producers could benefit from higher crude prices,” said Manoranjan Sharma, chief economist at Infomerics Ratings. Companies with foreign currency borrowings face a sharper blow, as servicing overseas debt becomes costlier in rupee terms.

The inflationary impulse is particularly worrying. Costlier crude oil filters through transport, manufacturing and logistics, eventually feeding into retail prices. “Higher oil prices widen India’s import bill and current account concerns, leading to defensive positioning in the rupee. The positive momentum seen post-budget and after the US–India trade understanding has temporarily faded under global risk-off sentiment,” said Jateen Trivedi, Vice President, LKP Securities.

“The rupee may weaken further as the proportion of GCC in India’s remittances is highest, and a prolonged period of conflict may impact remittance inflow into India. The short-term impact would be an increase in commodity prices and some supply disruption. Overall, the impact depends on how long conflict will continue,” said Devendra Pant, Chief Economist, India Ratings & Research.

There is also the sensitive issue of foreign capital flows. As foreign institutional investors, who account for a significant share of trading activity in Indian markets, measure returns in dollar terms, a falling rupee diminishes those returns when funds are repatriated. The result can be bouts of FII selling, adding pressure on stock prices and amplifying market volatility.

In an interconnected global economy, currency depreciation is not an isolated event. It impacts trade balances, corporate earnings, inflation expectations and investor sentiment, leaving policymakers to navigate a narrow and increasingly uncertain path.

Exporters set to gain

If a weakening rupee unsettles importers and policymakers, it offers a measure of relief to exporters. For companies that earn in dollars but incur a substantial portion of their costs in rupees, currency depreciation can act as a natural hedge. Every dollar of revenue translates into a higher rupee realisation. But all that works if there is some stability in the currency movements.

Experts say India’s IT services majors, pharmaceutical exporters and specialty chemical manufacturers are among the principal beneficiaries. Their billing is largely denominated in dollars and euros, while employee costs and operating expenses remain predominantly domestic. A softer rupee therefore enhances profitability without any immediate change in volumes. In an environment where global demand remains uneven, currency support can provide a timely earnings buffer. “IT companies and select export-oriented businesses may find relative support amid global risk aversion and a strengthening US dollar,” Sharma said.

For the technology sector in particular, the exchange rate tailwind comes at a critical juncture. IT companies have been grappling with slower client spending and the disruptive churn triggered by rapid advances in artificial intelligence (AI). A weaker rupee, by lifting rupee-denominated earnings, could help stabilise quarterly results and lend support to battered stock prices. External commercial borrowings (ECBs) stood at $ 44.36 billion as of December 2025, as per RBI data.

Pharmaceutical exporters also stand to gain from improved realisations, especially in regulated markets such as the US. Specialty chemical firms with long-term global contracts may see margin expansion if input costs remain stable. In the equity markets, such currency-driven earnings upgrades often trigger sectoral rotation, drawing investors to export-oriented counters.

Monetary policy impact

Rising inflation places the Reserve Bank of India in an increasingly delicate position. As price pressures build, particularly from imported crude, the central bank’s room for manoeuvre narrows. It may be forced to keep interest rates higher for longer, or even consider additional tightening, to prevent inflation expectations from becoming unanchored. Such a stance, while necessary for macroeconomic stability, inevitably raises borrowing costs across the system.

“We don’t expect the central bank to shift policy gears at this juncture, with an extended pause still at play,” Rao said. The RBI kept the key Repo rate unchanged at 5.25 per cent in the February monetary policy review.

Moreover, if rate hardens, costlier credit tends to cool consumer spending and slow fresh investment, tempering the pace of economic expansion. Equity markets, which thrive on liquidity and growth visibility, could also feel the strain as tighter monetary conditions weigh on corporate earnings and valuations.

The central bank may even have to reassess its inflation projections if elevated oil prices persist. In February, the RBI revised retail inflation at 2.1 per cent as against 2 per cent in FY 2026. For now, neither the government nor oil marketing companies have signalled an immediate increase in retail fuel prices. But if global crude continues its upward march, the cushion of price restraint may prove temporary, adding another layer of complexity to monetary policy calculations.