USD vs INR: Rupee Hits Fresh Record Low of 95.97 as Oil Shock and Outflows Pile On Pressure

Mumbai, May 14: The rupee slid further on Thursday, falling to a fresh record low as still-elevated oil prices and continued foreign portfolio outflows kept hammering the home currency.

The rupee sank as low as 95.97 against the dollar before paring losses to trade four paise lower at 95.75. In early trade, the local currency had opened two paise lower at 95.73. To be sure, the rupee has declined 1.4% so far this week, hitting record lows since Tuesday, and is down over 6% this year, becoming the worst performing currency among units of emerging Asian economies.

All this comes against the backdrop of Prime Minister Narendra Modi urging citizens over the weekend to conserve foreign exchange reserves, even as the government recently raised tariffs on precious metal imports to help manage external pressures, which in turn would help the rupee. Moreover, Reserve Bank of India Governor Sanjay Malhotra had said earlier this week that, although fuel prices have so far remained unchanged, the government may be forced to increase them if the conflict continues. He also noted that while monetary policy can look through short-term supply shocks, it may need to respond if the surge in oil prices begins to embed broader and more persistent inflationary pressures.

Broader Slide

The latest drop adds to a broader slide that has already pushed the currency to historic lows multiple times this month, underscoring the fragility of market confidence amid global volatility.

A key driver remains the sharp rise in crude oil prices following the ongoing geopolitical tensions surrounding the Iran conflict. Brent crude has surged significantly since the war began, placing heavy pressure on oil-importing economies such as India. With the country relying on imports for about 90% of its crude oil and roughly half of its gas requirements, higher energy costs directly widen the trade deficit and increase dollar demand.

Oil Shock

The oil shock has compounded concerns over foreign capital flows. Investors have pulled billions of dollars from Indian equities this year, adding to strain on the capital account and limiting the rupee’s ability to stabilise. Persistent outflows, combined with elevated import bills, have deepened concerns about India’s current account trajectory.

The currency is particularly vulnerable when crude prices remain elevated, as higher energy costs translate into increased dollar purchases by importers. This structural sensitivity has made the rupee one of the worst-performing major currencies in Asia so far in 2026, according to recent market assessments.

Policy Responses

Policy responses have been visible. The Reserve Bank of India (RBI) has reportedly stepped in through dollar sales and other measures to cushion sharper intraday declines, with traders noting support from state-run banks. While such interventions can moderate volatility, sustained relief would likely depend on either a meaningful pullback in oil prices or a revival in foreign inflows.

The broader macro backdrop remains challenging. Elevated energy costs are clouding India’s economic outlook, prompting policymakers to consider measures aimed at conserving foreign exchange reserves and managing import demand. The government has already signalled steps to address the strain on the external sector, highlighting the sensitivity of the economy to prolonged oil disruptions.

For now, the rupee’s path appears closely tied to global oil dynamics and geopolitical developments. Any easing of tensions that stabilises energy markets could provide breathing room for the currency. Until then, elevated crude prices, dollar strength, and portfolio outflows are likely to keep the rupee under pressure, with volatility remaining a defining feature of near-term trade.

Source: https://www.moneycontrol.com/markets/currencies/