The Indian rupee fell to a record low on Tuesday, breaching the 95 mark against the US dollar and weakening sharply against Gulf currencies, as rising oil prices and escalating tensions in the Middle East weighed heavily on investor confidence.
The slide comes amid ongoing instability around the Strait of Hormuz, a critical route for global energy supplies. Disruptions in the region have pushed crude prices to around $113–$115 a barrel, intensifying pressure on economies that rely heavily on imported oil, including India.
Analysts say the sharp increase in energy costs is worsening India’s trade balance and raising concerns about inflation, both of which are contributing to the currency’s decline. Since the outbreak of the US-Iran conflict in late February, the rupee has weakened by about 4.5 percent, reflecting a broader trend seen across several Asian currencies.
Financial institutions have warned that the outlook remains challenging. Analysts at UBS have revised their year-end forecast for the rupee to 96 per dollar, citing pressure on India’s balance of payments. Meanwhile, ANZ projected the currency could fall further to around 98 per dollar by early 2027.
The strain is linked not only to rising oil prices but also to weaker capital inflows. Higher global interest rates and geopolitical uncertainty are making it harder for India to attract foreign investment, a key factor in supporting the currency.
The Reserve Bank of India has stepped in to limit volatility, with traders reporting dollar sales through state-run banks near the 95.40 level. The central bank has been active in both spot and forward markets in an effort to stabilise the currency.
However, such interventions are becoming increasingly costly. India’s foreign exchange reserves have come under pressure, while forward dollar commitments have exceeded $100 billion, reflecting sustained efforts to defend the rupee.
Market participants say the central bank can manage short-term swings but cannot fully counter the underlying pressures from rising import costs and shifting capital flows. As a result, policymakers are exploring ways to attract more foreign currency, including reviving special deposit schemes for non-resident Indians and easing tax rules for overseas bond investors.
The currency’s decline has also affected domestic financial markets. India’s benchmark Nifty 50 index slipped, while bond yields edged higher amid expectations of rising inflation and tighter monetary conditions.
Across Asia, other oil-sensitive currencies, including the Indonesian rupiah and Philippine peso, have also come under pressure, reflecting the broader regional impact of the energy shock.
For Indian expatriates in Gulf countries, the weaker rupee has increased the value of remittances in the short term. Economists caution, however, that sustained depreciation could weigh on economic growth by increasing import costs and fuelling inflation.
With oil prices elevated and tensions in the Gulf showing little sign of easing, analysts expect the rupee to remain under pressure in the near term, closely tied to developments in global energy markets.
