The Indian rupee weakened again, and USD/INR moved back towards 95.00. This followed persistent foreign portfolio outflows and weaker global risk conditions.
Brent crude remained above $100 a barrel amid no clear progress in US-Iran negotiations and delays linked to the Strait of Hormuz. Higher oil prices raised the risk of domestic retail fuel price increases.
Rupee Pressures And External Funding
Foreign portfolio flows stayed negative, with equity outflows of -$5bn in the current financial year and debt outflows of -$0.7bn. These moves were linked to renewed upside risk for USD/INR in the current market backdrop.
El Nino was cited as a potential source of inflation pressure. Benchmark bond yields were expected to remain elevated as markets factored in possible tightening and fiscal risks tied to higher subsidies.
Press reports referred to central bank discussions on increasing foreign exchange buffers and attracting inflows. Measures mentioned included a facility for non-resident inflows and removal of withholding tax on offshore bond holdings.
Looking back at the concerns in 2025, we recall the significant pressure on the Rupee, with predictions of it nearing the 95 mark against the dollar. The situation today appears markedly different as the global risk backdrop has improved considerably. This suggests that the extreme upside risks we were pricing in last year may no longer be the primary concern.
Trading And Hedging Implications
A key driver for this change is the reversal in foreign portfolio flows. While we saw outflows of over $5 billion from equities in the last fiscal year from that 2025 perspective, recent data for 2026 shows net inflows of nearly $12 billion year-to-date. This renewed confidence is providing a strong base of support for the Rupee.
The oil price situation has also eased, offering significant relief. Brent crude is now trading comfortably around $85 per barrel, a stark contrast to the sustained period above $100 that plagued us in 2025. This development has lowered India’s import bill and reduced the pressure for retail fuel price hikes.
With inflation now moderating to around 4.5% and the Reserve Bank of India holding rates steady, benchmark 10-year bond yields have stabilized near 7.10%. This is a much calmer environment compared to last year when yields were continuously pushed higher by fiscal and tightening fears. The geopolitical tensions surrounding the Strait of Hormuz have also subsided, removing another layer of uncertainty.
Given this stability, traders should consider selling out-of-the-money USD/INR call options, for instance with strikes at 84.50 or higher for the coming months. The diminished threat of a sharp depreciation and lower implied volatility make this a viable strategy to earn premium. This is a significant shift from the previous stance of buying calls for protection.
For importers who were aggressively hedging their payables in 2025, the current environment allows for more flexibility. We can now look at using shorter-term forward contracts rather than locking in rates for a full year. This approach allows participation in any further spot appreciation of the Rupee.
