What Changed After March 2026 for Rupee?
The original pressure on the rupee through late 2025 and early 2026 came from sustained outflows of foreign portfolio investment, a stronger dollar, and concerns about US tariffs on Indian goods. That pressure intensified sharply when the West Asia conflict escalated in late February and March 2026. US-Israel strikes on Iran and the effective closure of the Strait of Hormuz sent Brent crude from around $80 to $120 in under a week.
For India, this is not an abstract geopolitical development. India imports 85-88% of its crude oil, roughly half of which transits through the Strait of Hormuz, and as per ORF: every $10 increase in crude prices widens India's current account deficit by 40 to 50 basis points.
On April 30, 2026, the rupee slid to a record low of 95.33 INR/USD after Brent crude jumped roughly 7% in a single session on April 29, 2026, to touch $111 per barrel, a level not seen since June 2022. As of May 4, 2026, the currency hovered near levels of 95.43 INR/USD .
Foreign Investors Continue To Exit
The capital account picture has worsened through April and into May. FII outflows have accelerated, with cumulative FY26 withdrawals reaching approximately ₹3.33 lakh crore, exceeding the total outflows of FY25. April alone saw FII outflows of over ₹70,100 crore, taking the total FII selling in FY27 over ₹67000 crore.
The shift in foreign bond flows has also been notable. As per EconomicTimes, Foreign investors were net buyers of Indian government bonds in 2025, putting in about $6.5 billion, but that momentum has cooled sharply in 2026, with inflows of only around $1.1 billion so far, as sentiment turned cautious following the Iran conflict.
The reasons behind the continued selling are layered. Global capital has been moving toward the United States and toward markets more directly linked to AI hardware and semiconductor supply chains; India does not yet have a significant presence in that space. Rising oil prices have made India's import-heavy economy look more vulnerable, and elevated crude prices and geopolitical uncertainty are pushing up inflation expectations globally, while also strengthening the dollar index and keeping US bond yields firm at around 4.43% as of May 4, 2026.
RBI’s Measures to Support the Rupee and What It Is Considering
The RBI has responded with a range of measures. It tightened restrictions on banks' net open currency positions, capping them at $100 million per day to reduce speculative positioning against the rupee. It curbed banks' participation in offshore non-deliverable forward markets, which had been amplifying volatility. It asked state-run oil refiners to shift dollar purchases away from the spot market. It has also intervened directly in spot and forward markets to slow the pace of decline.
India’s foreign exchange reserves have declined from a peak of $728.5 billion to around $698 billion. Although the RBI maintains that this level is sufficient to cover 11 months of imports, renewed pressures are prompting authorities to reinforce external buffers.
The RBI is now studying additional measures to attract dollar inflows, including possibly reviving a scheme last used in 2013 to draw in dollar deposits from non-resident Indians, which brought in about $26 billion at the time. A second option under discussion is removing the 5% withholding tax on foreign investors in Indian government bonds, which could encourage fresh inflows. No final decision has been taken on either measure, and any move would require coordination with the government.
The Inflation And Growth Outlook For FY27
The RBI's FY27 projections carry direct consequences for the rupee. With headline CPI expected to climb from 4% in Q1 to a peak of 5.2% in Q3, rising domestic inflation erodes the real purchasing power of the rupee even if the nominal exchange rate holds steady. Higher inflation also widens the import bill, puts pressure on the current account deficit, and limits the RBI's room to cut interest rates.
On growth, the RBI set its FY27 GDP forecast at 6.9%, which sounds solid, but growth driven by domestic consumption does not automatically bring in the dollars the rupee needs. India still runs a current account deficit, which means it relies on capital flows, FDI, and remittances to balance its external accounts. If foreign investment stays subdued while oil prices remain elevated, the deficit could widen even as the economy grows, keeping quiet but persistent pressure on the currency. With the RBI itself acknowledging that inflation risks are tilted to the upside due to global energy prices and weather uncertainties, the rupee's path through FY27 will depend heavily on whether those risks materialise, and how much room the central bank has left to respond without sacrificing either growth or exchange rate stability.
Rupee Asia’s Worst-Performing Currency in 2026
On a YTD basis, the Indian rupee has been the worst performer in the group, declining 6% against the dollar.
The Chinese yuan has been the standout performer among major Asian currencies, strengthening 2.37% against the dollar as the PBOC kept a firm grip on the exchange rate amid broad dollar weakness.
The Singapore dollar has also gained, up a modest 0.55% against the greenback, reflecting its well-managed float and Singapore's relatively favourable trade position.
On the weaker side, the South Korean won has lost 2.11% against the dollar YTD, underperforming despite the tailwind of WGBI bond index inclusion, as capital outflows and domestic pressures continued to weigh.
The Hong Kong dollar is down a negligible 0.67%, essentially a non-event given its hard peg to the dollar within a fixed convertibility band. The Japanese yen is marginally weaker too, down just 0.50% against the dollar YTD, a surprisingly flat showing despite the Bank of Japan's rate hike cycle, as rate differentials with the US remain wide enough to keep the yen under mild pressure.
The Rupee Against Currencies Of The World's Fastest-Growing Economies On Basis Of Real GDP Growth
- Guyana — Guyanese Dollar (GYD)
1 rupee buys approximately 2.31 Guyanese dollars. Despite Guyana being one of the fastest-growing economies, its currency remains influenced by its relatively small, oil-dependent economic structure and limited financial market depth. The gains from oil-led growth have not fully translated into currency movement. - Ethiopia— Ethiopian Birr (ETB)
1 rupee buys approximately 1.64 Ethiopian birr. In reverse terms, 1 Ethiopian birr is worth about ₹0.59. The birr’s movement reflects factors such as foreign exchange controls, a persistent current account deficit, and the economic impact of internal challenges. - Guinea — Guinean Franc (GNF)
1 rupee fetches approximately 94 Guinean francs. 1 Guinean franc is worth around ₹0.01. Guinea’s growth is supported by mining exports like bauxite and gold, while the currency has been influenced by inflation trends and monetary conditions. - Uganda — Ugandan Shilling (UGX)
1 rupee buys approximately 39.69 Ugandan shillings. The currency reflects long-term economic conditions, including income levels and structural factors within the economy, alongside steady growth momentum in recent years. - Bhutan — Bhutanese Ngultrum (BTN)
1 Bhutanese ngultrum equals approximately ₹1.004, placing it nearly at parity with the rupee. This is due to the ngultrum being officially pegged 1:1 to the Indian rupee, with both currencies closely linked in terms of monetary policy and usage, especially in border regions.
Summary
The rupee's difficulties in the current period are not primarily a representation of domestic policy failure. India's fiscal position is sound, credit growth remains healthy, and the banking system's capital adequacy and asset quality indicators remain stable. The problem is external: an energy price shock that hits an oil-importing economy hard, combined with a global reallocation of capital that has been running since mid-2025.
The rupee's 11% depreciation, the spike in crude prices, and the pause in the monetary easing cycle were not failures of policy; they were a reflection of India's exposure to a world that can change quickly.
The path forward depends considerably on factors outside India's control: whether the West Asia conflict stabilises and oil prices ease, whether the US Federal Reserve's stance becomes less restrictive, and whether the global capital rotation away from emerging markets runs its course. The RBI has the tools and the reserves to prevent a disorderly collapse, but the broader trend will remain sensitive to these external conditions as long as they stay unresolved.
