The Indian rupee fell by 30 paise on Tuesday, marking a significant decline driven by foreign institutional investor (FII) outflows and escalating crude oil prices. The currency has depreciated over 6% since the onset of the Iran war on February 28, reflecting heightened market volatility.
Since May 11, the rupee's rapid depreciation has surprised market participants, with FIIs withdrawing Rs 2.65 lakh crore from Indian markets in 2026, nearing last year's total exit of Rs 3.04 lakh crore. The ongoing geopolitical tensions and rising energy costs have intensified the pressure on the rupee.
The persistent weakness in the local currency is attributed to continuous FII outflows, elevated crude oil prices, and a strong demand for the US dollar as a safe haven amid global risk-off sentiment. Crude oil prices remain around $110 per barrel, exacerbating the rupee's decline.
“The speed of the rupee’s descent since May 11 has caught the market off-guard. This downward pressure is fuelled by higher energy prices and aggressive FII capitulation.”
KN Dey, Forex Market Consultant
Market analysts suggest that the rupee could test the 97 mark against the US dollar if no positive developments occur in the geopolitical landscape. The psychological barrier of 100 is also a possibility, given the current market trends.
The rupee's depreciation has broader implications for the Indian economy, affecting import costs and inflation. The central bank may need to intervene to stabilize the currency if the downward trend continues.
“With no bottom in sight, trying to forecast a stabilisation point is pure guesswork, and even a psychological slide to 100 may be on the table.”
KN Dey, Forex Market Consultant
Background
The rupee's decline is part of a broader trend of emerging market currencies facing pressure due to geopolitical tensions and rising energy prices. The Reserve Bank of India may need to consider policy measures to address the currency's volatility.
Looking ahead, market participants will closely monitor geopolitical developments and crude oil price movements. Any positive resolution in the Iran conflict or stabilization in energy prices could provide some relief to the rupee.
