Rupee Suffers Steep Weekly Decline Amid Escalating India-Pakistan Tensions

 The Indian rupee recorded a sharp weekly drop as escalating military tensions between India and Pakistan rattled investor confidence, weighing on local equities and sovereign bonds. However, suspected intervention by the Reserve Bank of India (RBI) on Friday helped the currency recover some ground.

The rupee ended the day stronger at 85.37 against the U.S. dollar, rebounding from an intraday low of 85.8425 — its weakest level in nearly a month — as traders reported RBI’s intervention to stabilize the market. Despite Friday’s gains, the currency posted a 0.9% loss over the week.

Geopolitical tensions surged as both India and Pakistan traded accusations of launching fresh military strikes on Friday, including the use of drones and artillery. This marked the third consecutive day of the fiercest cross-border fighting in nearly 30 years.

"There appears to be a fundamental incentive on both sides to avoid a major escalation in the medium term," noted Michael Wan, Senior Currency Analyst at MUFG, in a research note dated May 9. He also cautioned, “When it comes to geopolitical conflicts, it's important to acknowledge the limits of our knowledge.”

On the domestic front, the Nifty 50 index dropped over 1% amid heightened tensions, while government bonds remained mostly flat after an initial dip.

A trader at a major foreign bank confirmed "heavy intervention" by the RBI, suggesting it played a key role in preventing further depreciation of the rupee. The trader also remarked that the absence of such intervention could have triggered speculative pressure against the currency.

Meanwhile, most other Asian currencies weakened, even as the U.S. dollar index slipped 0.2% to 100.3.