The Indian rupee has been under strong pressure this year due to a sharp jump in crude oil prices, driven by the Middle East conflict, heavy foreign capital outflow, and increased safe-haven demand amid geopolitical uncertainties.
The domestic currency has declined nearly 7% against the US dollar so far this year, as per investing.com. On 14 May, it touched a record low of 95.96 per dollar.
The rupee’s weakness is likely to continue- some experts believe the domestic unit may touch the 100 mark if oil prices continue rising.
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The Indian rupee has fallen due to a sharp jump in crude oil prices, heavy foreign capital outflows, and increased safe-haven demand amid geopolitical uncertainties. These factors have put strong pressure on the domestic currency.
The primary drivers are elevated crude oil prices, sustained selling by Foreign Portfolio Investors (FPIs) in the Indian market, and geopolitical uncertainties that increase demand for the US dollar. These elements collectively weaken the rupee.
Policymakers are taking steps such as raising import duties on precious metals like gold and silver to discourage domestic demand and lower dollar outflows. There are also speculations about improving capital inflows into the country.
Some experts believe the rupee may touch the 100 mark if crude oil prices remain elevated for an extended period. An extreme geopolitical scenario, such as an escalation between the US and Iran, could also push oil prices higher and impact the rupee.
Sectors like IT services, pharmaceuticals, and textiles could benefit from a weaker rupee as their dollar-denominated revenues translate into higher earnings. Conversely, sectors dependent on imports, such as aviation, FMCG, and automobiles, may face margin pressure due to increased costs.
“If crude oil prices remain elevated for an extended period, the rupee will move to 100. The other major drag on the rupee is the sustained selling by FPIs in the Indian market,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
A Mint poll of 10 banks, brokerages and economists showed the domestic currency may stay in the 96-98 per dollar range by the end of 2026.
Policymakers tighten the nuts and bolts
The government and the Reserve Bank of India (RBI), anticipating there could be more fall in the currency, are taking measures to arrest the fall.
Recently, the government raised import duties on precious metals. India is one of the world’s largest importers of gold. Higher duties may discourage domestic demand, thereby lowering dollar outflows and supporting the rupee.
There are speculations that policymakers are also likely to focus on improving capital inflows into the country.
However, the question remains- will they be enough to help the rupee regain strength?
More weakness in the offing?
The government’s measures are important and will certainly play their role in checking the fall in the rupee.
However, the bigger issue is the elevated crude oil prices. Brent Crude has been above the $100 per barrel level for more than two months now, straining India’s fiscal maths.
India imports nearly 88–90% of its oil requirement, and unless oil prices cool off and foreign investors start buying again, the rupee can remain under pressure despite government measures, such as import-duty measures.
Debopam Chaudhuri, Chief Economist at Piramal Group, pointed out that assuming international gold prices remain broadly in line with FY26 levels, the increase in gold import tariffs could potentially reduce India’s import bill by nearly $2.5 billion during the year.
However, Chaudhuri added that by itself, this may not be sufficient to meaningfully strengthen the USD/INR.
“A more durable appreciation in the rupee is likely once India’s USD energy import bill moderates from current elevated levels and foreign investment inflows resume steadily,” said Chaudhuri.
Madhavi Arora, Chief Economist for Emkay Global Financial Services, also believes that the import duty hike on gold and silver is one of the measures aimed at strengthening the rupee, but it is unlikely to be the only step.
“There is room for additional policy action, particularly in areas such as curbing non-essential imports and moderating non-essential capital outflows,” said Arora.
“Several options are reportedly being discussed in Delhi, suggesting that more measures could be introduced if required to support the currency and manage external pressures,” said Arora.
Manoranjan Sharma, Chief Economist at Infomerics Ratings, pointed out that while the government’s decision to raise import duties on gold and silver aims to reduce imports, narrow the current account deficit (CAD), and ease pressure on the Indian rupee, the currency’s weakness stems more fundamentally from high crude oil prices and foreign capital outflows.
Sharma underscored that since India imports 85% of its crude oil needs, rising oil prices significantly increase the import bill and demand for dollars. Unless global crude prices moderate, pressure on the rupee will persist.
Moreover, geopolitical uncertainties and higher US interest rates drive the dollar’s demand. This aggravated foreign capital outflows and further weakened the rupee.
“Sustainable rupee depends, therefore, not only on curbing non-essential imports like gold, but also on stable oil prices, stronger exports, healthy forex reserves, and renewed foreign investment inflows,” Sharma said.
According to Paresh Bhagat, CIO of Veer Growth Fund (AIF), and Chairman at Mangal Keshav Financial Services, while the duty hike on gold and silver can provide some near-term relief to the rupee, the government will need to remain vigilant on unintended side effects.
“A sharp duty differential can sometimes encourage informal channels and non-transparent trade flows, so enforcement and monitoring become equally important,” said Bhagat.
Arpit Jain, Joint MD, Arihant Capital Markets, believes foreign investors are unlikely to turn aggressive buyers immediately, as valuations remain relatively high and global conditions remain uncertain.
“Unless global macroeconomic conditions improve and crude oil prices ease, sustained FII and FPI inflows may remain limited. As a result, the rupee could continue to remain under pressure for a longer period until both global and domestic macro conditions improve,” said Jain.
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Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
