Sep 11 2026 02:40 PM EST

Indian Rupee Weakness and Korean Won Resilience Shift INR/KRW Exchange Rate Amid Oil and Capital Flow Pressures

The INR/KRW currency pair fell 11.9% over the past three months, marking a sharp move driven primarily by record Indian rupee depreciation following the oil supply shock triggered by the 2026 Iran war. Persistent capital outflows from India and resilient semiconductor-led export flows in South Korea further contributed to the divergence, reinforcing a multi-month trend in Asian currency markets.

Oil Shock and Capital Outflows Drive Rupee Depreciation

The primary catalyst for the INR/KRW move was the surge in oil prices following the closure of the Strait of Hormuz in early 2026, which drove Brent crude above $105/barrel and sharply increased India’s energy import bill. India’s merchandise trade deficit widened to $31.98 billion in July 2026, with imports up 17.5% year-on-year, primarily due to higher oil, coal, and fuel prices. The rupee reached a record low of 95.55 against the US dollar, reflecting the currency’s sensitivity to external shocks and India’s oil dependency.

Capital flows further pressured the rupee, with foreign portfolio investor outflows totaling ₹2.6 trillion in 2026 and repatriation of $44.45 billion over the first nine months of FY25-26. While RBI interventions and FX reserve inflows above $700 billion helped limit volatility, they did not reverse the depreciation trend.

South Korea’s Export Strength and Structural Capital Outflows

In contrast, the Korean won benefited from robust semiconductor export growth, with chip shipments rising over 40% in 2026 amid strong global AI demand. Korea’s trade surplus and current account gains provided fundamental support for the currency. However, structural capital outflows from Korean institutions into global assets continued to weigh on the won, partly offsetting export-driven appreciation. The Bank of Korea intervened in FX markets—selling $797 million in Q2 and $1.745 billion in Q3 2025—to stabilize the currency amid heightened volatility.

KRW/INR exchange rates reflected the net effect of these opposing trends, with Korea’s export sector cushioning the currency against global risk aversion while India’s external vulnerabilities amplified rupee weakness.

Relative Rate Differentials and Central Bank Outlook

Interest-rate differentials remain a central driver for both currencies. The US Federal Reserve’s hawkish stance and elevated Treasury yields supported the US dollar, indirectly pressuring Asian currencies. India’s policy rate is expected to rise toward 6% by early 2027 as inflation risks persist, while the Bank of Korea is projected to set its policy rate above the Fed in 2027. These shifts could narrow the rate gap and eventually support the won relative to the rupee if capital flows stabilize and export earnings are repatriated.

RBI Governor Sanjay Malhotra emphasized that the rupee is market-determined and interventions aim to curb volatility rather than defend a fixed level. Bank of Korea policy remains cautious, balancing inflation risks with financial stability concerns amid volatile house prices and FX movements.

Broader Market Positioning and Asset-Class Relationships

The INR/KRW move fits within broader Asian FX trends, where oil import dependency and capital flow dynamics have created currency differentiation. India’s equity market lagged global peers year-to-date (-12.7% in USD terms through June), with sectoral diversity providing some resilience amid global sell-offs. Korean equities were more volatile, driven by semiconductor concentration and AI-related re-pricing, but capital outflows remained a structural drag. The relationship between oil prices and the rupee has been especially pronounced, with each $10 increase in Brent typically pressuring INR by 1.5–2.0%.

Export-oriented sectors in both countries benefited from currency weakness, but import-heavy industries faced margin compression and rising input costs. Market positioning reflects continued caution, with investors monitoring central bank actions, geopolitical developments, and capital flow trends.

The INR/KRW exchange rate remains sensitive to oil price developments, capital flow shifts, and central bank policy adjustments. Upcoming catalysts include further RBI and Bank of Korea meetings, inflation releases, trade data, and any resolution to the Middle East conflict or tariff disputes. The market is currently pricing persistent rupee weakness and only moderate won appreciation, with the trajectory likely to shift if external shocks abate or rate differentials change materially.