Why the Rupee Hit Record Lows: Key Pressures and Outlook

Oil's climb above $125 has sparked concerns about India's inflation-growth tradeoff, fueled by its heavy reliance on energy imports, and is also curbing capital inflows.

The rupee slid to 95.33 against the dollar, dropping up to 0.5% in the session and eclipsing its prior record low of 95.21 from late March.

This drop has wiped out recent recoveries from the central bank's supportive regulations unveiled late last month, fueling talk of additional interventions.

Through 2026 so far, the rupee is down almost 6%, extending last year's losses amid ongoing strains on India's external accounts—like U.S. trade tensions, sluggish capital inflows, and persistent global energy supply chaos.

Should the currency face more strain, the Reserve Bank of India might act by limiting spot-market dollar needs for oil, capping gold imports, or hiking monetary policy to steady the rupee.

Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, called the decline a classic reflexive trade. Soaring oil prices are spurring FII selloffs, which boost dollar demand from oil buyers and overpower RBI stabilization attempts.

April saw $7.5 billion in FII outflows alone, pushing year-to-date exits beyond $20 billion, while the oil import bill has ballooned with Brent crude jumping from $72 in February to $118 today. Trade deficits and capital outflows are aligning to squeeze the rupee without relief.

Banerjee noted the RBI is stepping in and plans to keep doing so, prioritizing volatility control over pegging a fixed rate. Reserves are smoothing depreciation, not halting it. With Brent over $115 and FII sales ongoing, USD/INR bias remains upward.

He flags 96 as the next critical threshold, where a break above could target 97—especially if Brent tops $125 amid escalating Strait of Hormuz tensions.

On the flip side, 94.80 offers key support, with the 94.50–94.80 zone drawing importer dollar bids. Dropping under 94.50 would need a steep oil price drop, say from Hormuz diplomacy, though that's not the likely outcome.

Banerjee views the rupee—like other Asian currencies—as a high-beta bet on Hormuz events, facing ongoing structural downside until tensions ease.