The ongoing Iran conflict has led to significant reactions in global markets. Equities have faced a downturn, while crude oil prices have surged alongside rising volatility across various asset classes. This turbulence has not only been confined to India’s Dalal Street but has also extended its effects to the Indian rupee.

The ramifications of the conflict are becoming a source of worry for households, particularly for those with home loans. The crisis has raised alarms over potential disruptions in global energy supplies, especially through the crucial Strait of Hormuz, a vital corridor for oil transport. As tensions escalate, crude oil prices are expected to increase due to fears of possible supply shortages.

With India being heavily reliant on oil imports, acquiring about 85 per cent of its crude from abroad, these developments pose a serious risk to the economy. An increase in oil prices inevitably inflates the import bill, leading to broader economic pressures.

Decline of the Indian Rupee

A significant reason for the weakening of the Indian rupee is linked to rising oil costs. As oil prices climb, the nation requires more US dollars to finance its imports, leading to an increased demand for the dollar and a subsequent depreciation of the rupee. Over recent sessions, the rupee has weakened by approximately 3 per cent since the conflict escalated.

This depreciation further compounds issues with import costs, pushing up prices across various sectors and increasing the likelihood of inflation. The repercussions of a weaker rupee extend beyond currency markets, contributing to higher expenses for essential goods.

The inflation rate, which stood at 2.74 per cent in January 2026, has since climbed to 3.21 per cent in February 2026. While this remains within the Reserve Bank of India’s (RBI) target of 4 per cent, the upward trend raises concerns about future economic stability, especially if oil prices continue to rise. Enhanced fuel and LPG costs also escalate input expenses for businesses, which could lead to broader price increases.

Implications for Monetary Policy and Home Loans

The upcoming RBI Monetary Policy Committee (MPC) meeting, slated for April 6 to 8, comes at a critical juncture amid increasing economic uncertainty. In its last session, held in February, the RBI opted to maintain the repo rate at 5.25 per cent, while adopting a neutral outlook given that inflation was manageable, liquidity remained adequate, and growth was stable. However, recent developments regarding crude oil prices may alter this stability considerably.

Brent crude has spiked by roughly 48 per cent in recent weeks due to the conflict, compelling global investors to adopt a cautious stance, which affects capital inflows into emerging markets like India. This situation is exerting additional pressure on the rupee and raising inflation concerns, alongside worries about the current account deficit. The RBI will now need to evaluate whether the escalation in inflation is a temporary phenomenon or likely to persist.

If inflation continues to trend upwards due to soaring oil prices, the RBI might opt to maintain higher interest rates for an extended period rather than decreasing them, impacting market expectations for lower rates in the future.

Home loan interest rates, closely correlated with the RBI’s repo rate, indicate that sustained high rates will maintain elevated loan costs for borrowers. While immediate hikes in Equated Monthly Installments (EMIs) are not assured, any anticipated reduction in home loan rates may be delayed. New borrowers might also face the prospect of higher interest rates than previously expected. The overall impact on home loans will hinge on the duration of the Iran conflict and the trajectory of oil prices in the forthcoming weeks.

Long or Short, get news the way you like. No ads. No redirections. Download Newspin and Stay Alert, The CSR Journal Mobile app, for fast, crisp, clean updates!

App Store –  https://apps.apple.com/in/app/newspin/id6746449540 

Google Play Store – https://play.google.com/store/apps/details?id=com.inventifweb.newspin&pcampaignid=web_share