The Reserve Bank of India sold small amounts of dollars in the onshore currency market on Wednesday as the rupee touched a fresh all-time low of 96.9650 against the US dollar, marking the eighth consecutive session of decline. According to The Hindu BusinessLine, the central bank's intervention came as the currency shed more than 7% this year to rank as Asia's worst performer. Michael Wan, senior currency analyst at MUFG Bank in Singapore, said the RBI may have to increasingly step in more if the dollar/rupee rises quickly closer to the 97 levels, and I believe there are likely measures being prepared as we speak. The RBI could step in with fresh measures, including steps to attract external capital, around the 97-97.50 level, according to Dhiraj Nim, foreign-exchange strategist at Australia and New Zealand Banking Group.
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading at 99.262, up 0.01%, adding to the rupee's downward pressure. As reported by The Hindu, forex traders said the outflow by Foreign Institutional Investors (FIIs) and decline in equity benchmark indices also pressured the Rupee. The immediate trigger for Wednesday's selloff was this sharp rise in US bond yields. The CME FedWatch tool now shows a 47 per cent probability of a US rate hike by December, up sharply from 14 per cent last week, as reported by The Hindu BusinessLine. Devarsh Vakil, Head of Prime Research at HDFC Securities, explained that "inflation fears, driven by the war in Iran and surging oil prices, mount. These elevated rates are driven by persistent inflation concerns linked to ongoing geopolitical conflicts and a shift in Federal Reserve expectations from potential rate cuts to a possible hike later in 2026."
The rupee's decline has been primarily driven by rising crude oil prices and relentless foreign fund outflows amid global uncertainty. As reported by The Hindu, Brent crude, the global oil benchmark, was trading down 0.35% at $110.59 per barrel in futures trade, with US Vice President JD Vance saying that progress in US-Iran talks remained limited. India, which imports a large share of its crude requirements, faces rising dollar demand from oil marketing companies as prices stay elevated, widening the current account deficit. India imports most of its oil requirements, and payments for those imports are made in US dollars. When oil prices rise, India needs more dollars, putting additional pressure on the rupee. Geopolitical tensions in the Middle East have further added to the uncertainty, driving crude prices higher and increasing India's import bill.
India's external position has come under strain due to elevated energy import costs and weak foreign capital inflows. According to The Hindu, Foreign Institutional Investors turned net sellers after three sessions of buying and offloaded equities worth ₹2,457.49 crore on Tuesday (May 19, 2026), compounding balance of payments pressures. Foreign Portfolio Investors (FPIs) have been selling Indian stocks and bonds aggressively, with these investors converting rupees into dollars when they pull money out of India, increasing demand for the US currency and weakening the rupee further. The combination of elevated energy prices and weak capital flows has left India staring at a steep balance of payments deficit for the ongoing fiscal year. Global investors have pulled out a record $23 billion from the nation's stocks this year, as reported by The Hindu BusinessLine, adding to the pressure on the rupee.
According to The Hindu BusinessLine, Ponmudi R, CEO of Enrich Money, said the pair is trading within the 96.80–96.90 zone, with immediate resistance near 97–97.20. He added that a sustained break above that level could push the pair toward 97.50, with 98 a near-term possibility. However, he noted that RBI intervention remains a key factor that could moderate near-term volatility. The continued decline could significantly impact India's economic outlook and daily life of ordinary Indians, with a weaker rupee increasing the cost of imports, especially fuel, electronics, and several consumer goods. Since India depends heavily on imported crude oil, the depreciation can eventually push petrol and diesel prices higher, with transport costs often rising alongside fuel prices, leading to costlier food items and everyday essentials. While exporters may benefit slightly from a weaker rupee in the short term, economists believe sustained currency weakness can create long-term uncertainty for growth and investment sentiment in the country.
