The widening of the war in the Middle East has hit the rupee, which breached the 92-per-dollar level for the first time.

The Indian currency sank to an all-time low of 92.18 against the US dollar on Wednesday as crude oil prices saw a sharp spike with the US-Iran conflict intensifying. Brent crude crossed $82 per barrel in futures trade, impacting investor sentiments. 

The disruption of trade flows and threat of costlier imports also led to the rupee shedding 69 paise against the dollar on Wednesday. It fell below the previous low of 91.99 in January, increasing the prospects of the Reserve Bank of India (RBI) intervening in the market to avert a steeper fall.

The RBI’s monetary policy committee (MPC), which meets next month, will have to weigh in inflation to decide on interest rates. Since India imports more than 80% of its crude oil needs, the rupee and the current account deficit (CAD) will come under pressure as prices rise. 

A weakening rupee will tend to spur foreign capital outflows while costlier imports will hurt the trade balance.

An extended conflict in the Middle East will slow down remittance flows from Indians working in the region.