Rupee Slumps 1.1% to 95.57 as Brent Above $102 Erases Early-September Gains 

Mumbai, Sept 12: The Indian rupee recorded its sharpest weekly decline in four months during the week of 7 to 11 September 2026, falling more than 1.1% against the US dollar as surging crude oil prices and escalating geopolitical tensions in West Asia reversed its early-September gains. 

The rupee ended the week at 95.57 against the US dollar, extending its decline for a fourth consecutive session. The currency had started the week strongly at 94.39 on 7 September, touching a two-month high after robust foreign currency non-resident (FCNR-B) deposit inflows supported demand for the rupee. 

The rally, however, proved short-lived. Rising tensions involving the US and Iran, concerns over shipping through key Middle East routes and a sharp increase in crude oil prices pushed Brent above $100 per barrel for the first time since mid-May. Brent ended the week above $104 per barrel, increasing concerns over India’s import bill and inflation outlook. 

The sharp reversal highlighted the rupee’s continuing vulnerability to external shocks, particularly oil prices, even as the Reserve Bank of India (RBI) maintained an active presence in the foreign exchange market. 

Rupee Ends at 95.57 as Oil Breaches $104 

The rupee’s weakness intensified as the week progressed. On 8 September, the currency slipped 18 paise to close at 94.74 against the dollar as crude prices moved closer to the $100 mark. 

On 9 September, the rupee weakened another 21 paise to close at 94.95. Brent crude was approaching the psychologically important $100 level as concerns over US-Iran tensions increased demand for safe-haven assets and raised fears of disruption to oil supplies. 

The pressure became stronger on 10 September, when the rupee fell 44 paise to close at 95.52. It opened at 95.15 and weakened steadily during the session, recording its steepest single-day decline since mid-July. Brent crude crossed $102 per barrel, increasing concerns about the impact of higher energy costs on India’s external balances. 

On 11 September, the rupee opened at 95.70 and slipped to an intraday low of 95.79 before recovering to an intraday high of 95.51. It finally settled at 95.57, down 5 paise from the previous close. 

The weekly decline marked the rupee’s sharpest fall since mid-May, when higher crude prices had pushed the currency towards a record low of 96.96. The latest decline also erased much of the rally recorded earlier in September, when the rupee had strengthened to around 94.30–94.40. 

FCNR-B Inflows Initially Support Rupee 

The rupee entered the week with considerable support from foreign currency inflows through the FCNR-B deposit route. The RBI’s concessional swap facility had encouraged banks to mobilise foreign currency deposits by offering higher interest rates than those normally available. 

The scheme, announced on 5 June 2026, offered interest rates of 6.00% to 7.50% during the 85-day window and covered deposits mobilised by banks until 31 August 2026. Market participants estimated that banks had mobilised FCNR-B deposits with three-to-five-year maturities aggregating to about $80 billion and swapped the funds with the central bank. 

Overall inflows through the FCNR-B route were estimated at more than $127 billion, providing a major source of foreign currency liquidity and helping the rupee outperform several Asian currencies. 

The inflows also allowed the RBI to maintain greater flexibility in managing the currency market. The central bank had intervened regularly in the spot and non-deliverable forward markets, helping the rupee strengthen despite an uncertain global backdrop. 

However, the FCNR-B scheme closed on 31 August, meaning the fresh inflow support began to fade as the September rally progressed. With that cushion weakening, the rupee became more exposed to higher crude prices, foreign portfolio outflows and rising US bond yields. 

RBI Uses Swaps to Manage Currency and Liquidity 

The RBI remained active in the foreign exchange market during the week as it attempted to contain excessive volatility in the rupee. 

The central bank was also expected to conduct dollar-rupee sell/buy swaps for a third consecutive session on Friday. Such transactions involve selling dollars in the spot market and buying them back in the forward market. They can support the rupee while simultaneously absorbing excess rupee liquidity from the banking system. 

RBI Governor Sanjay Malhotra, in a media interview aired on Friday, said the central bank would need to support the foreign exchange market. He also indicated that the RBI was keeping multiple tools available to manage liquidity and keep the overnight rate aligned with the repo rate. 

These tools include foreign exchange swaps and open market bond sales. Analysts said the RBI’s swap operations had pushed forward premiums higher across the curve, reflecting expectations of continued central bank involvement. 

The RBI also has significant reserves to manage periods of currency stress. India’s foreign exchange reserves stood at more than $740 billion, giving the central bank substantial firepower to smooth excessive movements in the rupee. 

However, intervention can limit volatility rather than permanently reverse the underlying pressure. If crude prices remain elevated and foreign outflows continue, the RBI may need to provide sustained support to prevent sharper rupee depreciation. 

FPI Outflows Add to Currency Pressure 

Foreign portfolio investor (FPI) activity also turned less supportive during the week. Foreign investors had remained relatively constructive through July and August, but selling pressure returned as global risk sentiment deteriorated. 

Foreign investors sold Indian equities worth ₹438.24 crore on a net basis on Thursday, according to exchange data. They had also recorded net equity sales of ₹123.19 crore on Tuesday. 

The renewed outflows added to pressure on the rupee because foreign investors typically convert dollars into rupees when investing in Indian assets and reverse that process when withdrawing funds. 

The pressure coincided with weakness in Indian equities. On Friday, the Sensex fell 120.83 points to 74,781.76, while the Nifty declined 79.70 points to 23,398.10. 

The rupee therefore faced several simultaneous headwinds: higher crude prices increased dollar demand from oil importers, foreign equity outflows reduced foreign currency inflows, and elevated US Treasury yields increased the attractiveness of dollar assets. 

At the same time, the RBI’s intervention, strong domestic economic growth and high foreign exchange reserves provided important support. 

Oil Becomes the Rupee’s Biggest External Risk 

Crude oil emerged as the dominant driver of the rupee’s weekly decline. Brent crude moved above $100 per barrel and ended the week above $104, although prices eased slightly on Friday after reports that Middle Eastern foreign ministers were seeking a temporary arrangement to support shipping through the Strait of Hormuz. 

The escalation of US-Iran tensions and attacks affecting major shipping routes increased concerns about potential supply disruptions. Any prolonged disruption could keep oil prices elevated and increase India’s import costs. 

India remains highly dependent on overseas crude supplies, sourcing more than 88% of its crude requirement from international markets. A sustained increase in crude prices therefore directly affects the country’s trade balance, inflation and demand for US dollars. 

Every $10 per barrel increase in crude prices can add roughly $13–14 billion to India’s import bill, increasing pressure on the current account and the rupee. The Indian crude oil basket also reflected the sharp increase in global prices. It had risen to $108.91 per barrel by 9 September, up nearly 29.5% from its July low. 

This explains why the rupee reacted more sharply to the latest oil rally than some other Asian currencies. The currency had previously shown some resilience despite fluctuations in crude prices, but the latest surge has brought oil sensitivity back into focus. 

Dollar Strength Is Not the Main Reason for Rupee Weakness 

The rupee’s decline during the week also stood out because the broader US dollar was not experiencing a comparable surge. 

The Dollar Index remained within a relatively narrow range of 98.76 to 99.13 during the week. The dollar itself remained near multi-month lows against several major currencies. This suggests that the rupee’s weakness was driven more by domestic and commodity-related factors than by broad-based dollar strength. 

Higher crude prices increased India’s demand for dollars, while foreign portfolio selling added another source of dollar demand. At the same time, rising US Treasury yields made dollar-denominated assets more attractive to global investors. The US 10-year Treasury yield climbed to its highest level since 2023, adding another layer of pressure on emerging-market currencies. 

Fed Outlook Adds Another Layer of Uncertainty 

Investors were also watching US inflation data and the Federal Reserve’s upcoming policy meeting scheduled for 15–17 September. Markets were pricing in a 58% probability of a rate hike, while forecasts pointed to a 0.2% monthly increase in core consumer price inflation. 

A stronger-than-expected US inflation reading could push Treasury yields higher and strengthen the dollar, creating another headwind for the rupee. Conversely, softer inflation could reduce pressure on emerging-market currencies by lowering expectations for tighter US monetary policy. 

For the rupee, the combination of oil prices and US interest rates remains particularly important. Higher crude prices increase India’s dollar demand, while higher US yields can encourage global capital towards dollar assets. Together, these factors can amplify currency pressure. 

Technical Outlook: 95.80 Resistance, 95.15 Support 

From a technical perspective, analysts identified 95.80 as an important resistance level for USD/INR, while 95.15 remained a key near-term support zone. The sharp rise in USD/INR over the previous three sessions suggested that the pair could enter a period of consolidation around the 95.80 region. A sustained move above that level could indicate further rupee weakness, while a break below 95.15 could signal some recovery in the local currency. 

Analysts expect the rupee to retain a negative bias if global risk sentiment remains weak and crude prices stay elevated. However, RBI intervention could provide support at lower levels and prevent excessive volatility. Near-term trading expectations place USD/INR in the 95.45–95.90 range, although a sharp movement in crude prices or global bond yields could widen that range. 

The rupee’s near-term direction will depend on Brent crude, RBI intervention, FPI flows and US inflation data. Traders should watch the 95.80 resistance and 95.15 support levels, while the Fed’s 15–17 September meeting could influence the dollar. Sustained oil prices above $100 and continued foreign selling could keep pressure on the rupee in the coming week. 

Source 

• https://rbi.org.in/