India’s rupee remained close to its record low against the US dollar on Friday, 9 October, as persistent foreign investment outflows, elevated crude oil prices and sustained demand for the American currency continued to weigh on the exchange rate. Intervention by the Reserve Bank of India (RBI) helped limit the currency’s losses, but the underlying pressures remained firmly in place.
The rupee closed at 96.73 against the dollar, approaching its all-time low of 96.96 recorded in May 2026. The latest movement highlights the challenges facing Indian policymakers as they seek to maintain currency stability amid uncertain global financial conditions and rising import costs.
A weaker US dollar and falling US Treasury yields provided some relief to Asian currencies during the session. However, these developments were not sufficient to reverse the rupee’s decline. Foreign investors’ decisions to withdraw funds from Indian financial markets, together with demand for dollars from importers and businesses managing currency risks, continued to undermine the Indian currency.
The rupee’s performance has become a concern for policymakers because sustained depreciation can affect the cost of imported goods, complicate inflation management and increase the burden on companies with liabilities denominated in foreign currencies.
RBI intervention offers limited relief
The RBI has intervened in the foreign exchange market in an effort to prevent further depreciation. Market participants said state-owned banks had sold dollars, probably on behalf of the central bank, helping to contain the rupee’s losses.
Central banks can use foreign exchange reserves to supply dollars when demand rises sharply. By increasing the availability of the American currency, such interventions can help moderate sudden exchange-rate movements and discourage excessive volatility.
However, intervention does not necessarily reverse a currency’s broader downward trend. When demand for dollars remains elevated because of investment outflows, import payments or concerns about future exchange-rate movements, the pressure can persist even after the central bank enters the market.
India’s substantial foreign exchange reserves provide the RBI with resources to manage periods of market instability. Nevertheless, policymakers must balance the need to support the rupee against the importance of preserving reserves for other external financing requirements.
The latest intervention appears to have helped limit immediate losses, but the currency’s continued proximity to its record low suggests that market pressures have yet to ease significantly.
Interest-rate increase fails to strengthen rupee
The rupee has remained weak despite the RBI’s first interest-rate increase in nearly four years. The absence of a stronger currency response underlines the influence of factors beyond domestic monetary policy.
Higher interest rates can make a country’s financial assets more attractive to investors by improving potential returns. This may support demand for the domestic currency. The impact, however, depends on broader economic conditions, investors’ expectations and the relative returns available in other markets.
In India’s case, persistent foreign portfolio investment outflows have continued to weigh on the exchange rate. When overseas investors sell Indian shares or other financial assets and convert the proceeds into dollars, demand for the American currency can increase, putting additional pressure on the rupee.
Businesses and importers are also contributing to dollar demand as they seek protection against the possibility of further depreciation. Currency hedging allows companies to reduce uncertainty over future foreign exchange payments, although increased demand for such protection can influence market activity.
Meanwhile, the softer dollar and lower US Treasury yields offered modest support to several Asian currencies. Yet the rupee has struggled to benefit fully from these developments because of India-specific pressures, including capital outflows and the cost of energy imports.
Rising crude oil prices increase economic risks
Higher crude oil prices remain a significant concern for India, one of the world’s largest oil importers. The country’s reliance on overseas energy supplies means that increases in international oil prices can raise its import bill and increase demand for foreign currency.
Brent crude rose by around 4 per cent on Thursday, reaching nearly $106 a barrel. Prices subsequently retreated following comments by US President Donald Trump concerning developments involving Iran.
Oil prices are particularly important for the rupee because importers generally need dollars to settle payments for crude and other internationally traded energy products. When oil becomes more expensive, the amount of foreign currency required to purchase the same volume of imports rises.
A larger import bill can place additional pressure on the country’s external balances, particularly if export earnings and other foreign currency inflows do not increase sufficiently to offset the higher costs.
Expensive energy can also affect the wider economy. Higher fuel and transport costs may feed into the prices of goods and services, adding to inflationary pressures. If the rupee weakens at the same time, imported commodities can become even more expensive in local currency terms.
The combination of elevated oil prices and currency depreciation therefore presents a difficult challenge for Indian policymakers. It can increase the cost of living while complicating decisions on interest rates and broader economic management.
Foreign exchange reserves decline from record high
India’s foreign exchange reserves stood at $734.6 billion on 2 October, approximately $50 billion below the record high reached in September. Figures cited by Reuters showed that reserves had declined for four consecutive weeks.
Foreign exchange reserves are an important financial buffer. They help a country meet external payment obligations, support confidence in its ability to manage currency-market pressures and provide the central bank with resources to intervene when necessary.
A decline in reserves does not, by itself, indicate a crisis. Reserve levels can fluctuate for several reasons, including currency valuation changes and central bank operations. However, a sustained reduction alongside continued pressure on the domestic currency can attract greater scrutiny from investors and market analysts.
India’s remaining reserves are substantial and could provide the RBI with considerable capacity to respond to market volatility. The effectiveness of that capacity will depend partly on the scale and duration of dollar demand, as well as the central bank’s willingness to use its reserves to moderate further depreciation.
Maintaining confidence in the rupee will also require attention to the wider economic forces influencing capital flows and external payments.
Analysts expect continued weakness
Analysts surveyed by Reuters expect the rupee to remain close to record-low levels over the next three to six months. Their outlook reflects continued uncertainty over foreign investment flows, energy prices and international financial conditions.
Japan’s MUFG has forecast that the dollar could reach 97.50 rupees by September 2027. The projection points to the possibility of further depreciation, although it remains a forecast rather than a certainty.
The exchange rate could follow a different path if oil prices decline, foreign investment flows improve or global financial conditions become more favourable for emerging-market currencies. Conversely, renewed increases in energy prices or further capital outflows could intensify the pressure.
A weaker rupee also carries consequences for Indian businesses. Companies that rely heavily on imported raw materials, machinery or energy may face higher operating costs. Those with loans or other financial obligations denominated in dollars could see the rupee cost of repayments rise, even if the amount owed in foreign currency remains unchanged.
Exporters may receive more rupees for their dollar earnings when the domestic currency depreciates. However, the overall benefit depends on their reliance on imported inputs, their pricing arrangements and conditions in overseas markets. Currency weakness is therefore not uniformly advantageous to all businesses.
For households, the effects may emerge through higher prices for imported products and goods whose production depends on foreign-sourced materials or energy.
Oil prices, capital flows and RBI policy to shape outlook
The rupee’s immediate direction will depend on the interaction of several factors: international crude oil prices, foreign investment movements, the strength of the US dollar and the RBI’s response to market volatility.
The central bank’s intervention may help smooth sharp movements and limit excessive short-term depreciation. However, sustained currency stability will depend on whether the underlying demand for dollars begins to ease.
For now, the rupee’s position near its historical low illustrates the difficulty of defending a currency when external pressures remain strong. Although India retains a sizeable reserve buffer, continued oil-price uncertainty and foreign investment outflows could keep the exchange rate under pressure in the months ahead.