23 Apr 2025: Militants attack tourists in Kashmir; Delhi blames Islamabad and launches “precision” strikes across the Line of Control, triggering artillery exchanges. Wikipedia
10 May: A U.S.–brokered ceasefire pauses the fighting, though sporadic shelling and accusations of violations persist. State DepartmentBBC
| Phase | Date range | Headline move | Drivers |
|---|---|---|---|
| Escalation | 23 Apr – 9 May | Rupee slips from ₹84.60 to an intraday low of ₹85.88 per USD | Risk-off outflows, higher oil prices, safe-haven dollar demand @EconomicTimes@EconomicTimes |
| Ceasefire relief | 10 May – 14 May | INR pares losses to ~₹85.27 | Ceasefire, RBI spot intervention, return of FPI buying ReutersReuters |
| Still fragile | Outlook | ING now sees USD/INR at 88 within 12 months on “geopolitical uncertainty and reserve build-up.” Reuters |
Even after the bounce, the rupee is down roughly 1 % against the dollar since mid-April and remains the second-worst-performing major Asian currency in that window.
| Risk channel | Potential impact on INR |
|---|---|
| Capital flows | Foreign portfolio investors sold ₹78 bn in Indian equities during the first week of fighting; renewed conflict could accelerate outflows, widening the current-account gap. |
| Oil & inflation | A risk premium on Brent crude ($3-5 /bbl historically during South-Asia conflicts) would raise India’s import bill and pressure the rupee. |
| Ratings & funding | A drawn-out conflict would likely prompt the big agencies to put India on a negative outlook, lifting sovereign spreads and corporate borrowing costs. |
| RBI fire-power | India’s FX reserves (~$630 bn) give the central bank room to smooth volatility, but defending a fixed level could deplete reserves quickly if outflows spike. |
| Contagion | Any U.S./EU sanctions on Pakistan or disruptions to regional trade corridors would ripple through supply chains and sentiment. |
| Strategy | Rationale |
|---|---|
| Hold a USD sleeve (or USD-pegged stablecoins) | Natural hedge against INR weakness; dollar liquidity deepens in crises. |
| Own defensive foreign assets | Gold historically rallies when South-Asian tensions rise and when INR weakens; a 5-10 % allocation can offset FX losses. |
| Use FX forwards/options | Corporates and HNIs can lock in today’s USD/INR or buy cheap out-of-the-money calls as insurance. |
| Diversify within India | Export-heavy IT majors and pharma firms earn in dollars; their shares often outperform in a weak-rupee environment. |
| Avoid concentration in short-tenor rupee debt | Yields jump quickest when foreign investors exit; ladder maturities or mix with sovereign-backed USD bonds (Masala or global). |
The April–May skirmish was a reminder that geopolitics can upend currency trends overnight. The ceasefire brought relief, but ING’s 12-month target of ₹88 underscores lingering anxiety. For individuals and businesses with rupee exposure, holding a diversified mix of hard-currency assets, gold, and hedging instruments provides a cushion should hostilities flare again.