India’s rupee remained close to its historic low against the US dollar on Friday, 9 October, as foreign investment outflows, elevated crude oil prices and persistent demand for the American currency continued to weigh on the exchange rate. Efforts by the Reserve Bank of India (RBI) to contain the decline provided some support, but the underlying pressures on the currency showed little sign of easing.
The rupee closed at 96.73 against the dollar, approaching its all-time low of 96.96 recorded in May 2026. Although a softer US dollar and falling US Treasury yields offered some relief to Asian currencies, the Indian currency continued to face significant downward pressure.
The latest movement highlights the challenges confronting Indian policymakers as they seek to maintain exchange-rate stability amid uncertain global financial conditions. A sustained decline in the rupee can increase the cost of imports, complicate inflation management and raise the burden of foreign-currency debt repayments for businesses.
RBI intervenes to limit further depreciation
The RBI has intervened in the foreign exchange market in an attempt to prevent further losses. Traders said state-owned banks had sold dollars, probably on behalf of the central bank, helping to limit the rupee’s decline.
Central banks can intervene in currency markets by selling foreign exchange reserves to increase the supply of dollars when demand rises sharply. Such operations can help moderate excessive volatility and prevent abrupt movements in exchange rates.
However, intervention does not necessarily reverse a sustained downward trend. If demand for dollars remains elevated because of foreign investment withdrawals, import payments or concerns about future currency movements, the pressure can persist even after the central bank enters the market.
India’s substantial foreign exchange reserves provide the RBI with a financial buffer 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 payment requirements.
The latest intervention appears to have helped contain immediate losses, but the currency’s continued proximity to its record low suggests that market pressures remain considerable.
Interest-rate increase fails to strengthen currency
The rupee has remained weak despite the RBI’s first interest-rate increase in nearly four years. The limited response highlights how domestic monetary policy can be overshadowed by capital movements and international economic developments.
Higher interest rates can make a country’s financial assets more attractive by improving potential returns for investors. This may encourage capital inflows and support demand for the domestic currency. The outcome, however, depends on investors’ expectations, global interest-rate conditions and the wider economic outlook.
In India’s case, persistent foreign portfolio investment outflows have continued to weigh on the rupee. When overseas investors sell Indian shares or other financial assets and convert the proceeds into dollars, demand for the US currency can increase, putting additional pressure on the rupee.
Importers and businesses are also contributing to dollar demand as they seek protection against 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, lower US Treasury yields and a weaker dollar have provided modest support to several Asian currencies. These developments have not been sufficient to offset the pressures facing the Indian currency.
Rising oil prices add to economic concerns
Higher crude oil prices remain a major 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, before retreating following comments by US President Donald Trump concerning developments involving Iran.
Oil prices are particularly important for the rupee because Indian importers generally require dollars to pay for crude and other internationally traded energy products. When prices rise, the country needs to spend more foreign currency to purchase the same volume of oil.
A larger import bill can put additional pressure on India’s external balances, particularly if export earnings and other foreign currency inflows do not rise sufficiently to offset the higher costs.
The effects can extend beyond the foreign exchange market. Higher energy prices may increase transport, manufacturing and distribution costs, which can eventually feed into consumer prices. If the rupee weakens at the same time, imported goods and raw materials may become even more expensive in local currency terms.
This combination presents a difficult challenge for policymakers, as rising import costs can add to inflationary pressures while making currency stabilisation more complicated.
Foreign exchange reserves fall from September peak
India’s foreign exchange reserves stood at $734.6 billion on 2 October, approximately $50 billion below their record high in September. Figures cited by Reuters showed that reserves had declined for four consecutive weeks.
Foreign exchange reserves serve as an important financial safeguard, helping countries meet external payment obligations and giving central banks the capacity to respond to currency-market volatility. They can also support confidence in a country’s ability to manage periods of financial uncertainty.
A decline in reserves does not automatically indicate a crisis. Figures can fluctuate because of valuation changes, foreign exchange operations and other factors. However, a sustained reduction alongside continued pressure on the domestic currency may attract closer attention from investors and market analysts.
India’s reserves remain substantial, providing the RBI with resources to manage exchange-rate volatility. The extent to which those resources can limit further depreciation will depend on the scale and duration of dollar demand, as well as the central bank’s approach to market intervention.
Maintaining investor confidence will also require attention to the wider economic conditions affecting capital flows, import costs and external payments.
Analysts anticipate continued weakness
Analysts surveyed by Reuters expect the rupee to remain near record-low levels over the next three to six months. Their outlook reflects 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 suggests the possibility of further depreciation, although it remains a forecast rather than a certainty.
The exchange rate could follow a different path if crude oil prices decline, foreign investment inflows improve or global financial conditions become more favourable for emerging-market currencies. Conversely, renewed increases in energy costs or further capital withdrawals could intensify the pressure.
The consequences of a weaker rupee will vary across the Indian economy. Import-dependent businesses may face higher costs for machinery, raw materials and energy. Companies with dollar-denominated loans or other foreign-currency liabilities could also see the rupee cost of repayments increase, even if the amount owed in dollars remains unchanged.
Exporters may benefit from receiving more rupees when converting their dollar earnings. However, the advantage depends on their reliance on imported inputs, pricing arrangements and conditions in overseas markets. Currency depreciation therefore does not benefit all businesses equally.
Households could also feel the effects if higher import costs feed into the prices of fuel, consumer goods and products manufactured using foreign-sourced materials.
Oil prices and capital flows to shape the outlook
The rupee’s near-term direction will depend on several interconnected factors, including international crude oil prices, foreign investment movements, the strength of the US dollar and the RBI’s response to market volatility.
Central bank intervention can help smooth abrupt exchange-rate movements and limit excessive short-term depreciation. Sustained stability, however, will depend partly on whether the underlying demand for dollars begins to ease.
For now, the rupee’s position near its historic low illustrates the difficulty of defending a currency when external pressures remain strong. Although India retains a sizeable reserve buffer, continued uncertainty over oil prices and foreign investment could keep the exchange rate under pressure in the coming months.
