The surge in oil to $125 and above levels has raised fears over India’s inflation-growth balance, given its dependence on energy imports, while also weighing on capital flows.
The rupee weakened to 95.33 per dollar, falling as much as 0.5% during the session and surpassing its previous record low of 95.21 touched in late March.
The recent decline has erased gains driven by the central bank’s currency-supportive regulatory measures introduced late last month, leading to speculation about whether further steps may be announced.
So far in 2026, the rupee has fallen nearly 6%, adding to a similar decline last year. This comes amid sustained pressure on India’s external sector, including trade frictions with the United States, weak capital inflows and the ongoing disruption to global energy supplies.
If pressure on the currency continues, the Reserve Bank of India could consider measures such as curbing oil-related dollar demand in the spot market, restricting gold imports or tightening monetary policy to stabilise the rupee.
Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, fall was driven by what he described as a textbook reflexive trade. Rising oil prices are triggering FII outflows, which in turn are adding to dollar demand from oil importers, overwhelming the Reserve Bank of India’s efforts to stabilize the currency.He noted that April alone has seen FII outflows of $7.5 billion, taking year-to-date outflows past $20 billion. This comes alongside a sharp rise in the oil import bill, with Brent crude moving from $72 in February to $118 now. Both the trade deficit and capital account are exerting pressure in the same direction, leaving the rupee without a natural buffer.
Banerjee said the RBI is intervening and will continue to do so, but its approach is focused on managing volatility rather than defending a specific level. Foreign exchange reserves are being used to slow the pace of depreciation, not reverse it. As long as Brent remains above $115 and FII selling continues, he expects the bias for USD/INR to stay upward.
He identified 96 as the next key level for the pair, with a sustained move above it potentially opening the path to 97. This scenario could materialise if Brent crosses $125 and the situation around the Strait of Hormuz worsens further.
On the downside, he sees 94.80 as an important support, with the 94.50–94.80 range likely to attract strong dollar buying from importers. A move below 94.50 would require a sharp fall in oil prices, possibly driven by a diplomatic resolution in Hormuz, which he said is not the base case.
Banerjee added that the rupee, like other Asian currencies, is currently a high-beta play on developments around the Strait of Hormuz and is likely to remain under structural pressure until the situation stabilises.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
