The Indian rupee has weakened by nearly 12% against the US dollar over the past year, making it Asia’s worst performer. The move has been linked to equity outflows and higher oil import costs.
Foreign equity outflows exceeded USD20bn in the first four months of this year, compared with USD19bn in total during 2025. Demand for US dollars from oil importers has also risen as crude import costs increased.
India’s shift from discounted Russian crude to more expensive Middle Eastern supplies, under a US trade deal, has added to import cost pressures. This has increased demand for US dollars.
Authorities have stepped up support for the rupee through direct foreign exchange intervention and by requiring banks to unwind speculative long-USD positions. Gold import rules have also been tightened to reduce dollar demand.
The government raised the gold import tariff to 15% from 6% and set a 100kg cap per licence under the advance authorisation scheme. Capital gains tax relief for foreign bond holders is also being considered.
If oil prices stay high, the rupee is likely to remain under pressure, with the central bank aiming to limit volatility rather than fully counter the depreciation.
The Indian Rupee continues to face headwinds, echoing the challenges we saw back in 2025 with significant equity outflows and high import costs. With Brent crude prices recently climbing back to around $95 a barrel, the pressure from India’s oil import bill is intensifying once again. This situation suggests the core factors driving INR weakness have not gone away.
For derivative traders, this environment points towards continued high volatility in the USD/INR pair. Given the Reserve Bank of India’s historical preference for smoothing declines rather than halting them, traders should consider strategies that profit from a gradual depreciation. Buying call options on the USD/INR could be a prudent way to gain exposure to further Rupee weakness while limiting downside risk.
We’re not seeing the meaningful reversal in foreign portfolio investment that would be needed for a durable INR recovery. While outflows slowed late last year, recent data shows foreign investors turned net sellers again in April 2026, pulling out approximately $2 billion from Indian equities. This persistent selling pressure makes a strong rebound unlikely in the immediate term.
The RBI remains a key player, actively intervening to curb excessive volatility, but its actions are not a silver bullet. We’ve seen India’s foreign exchange reserves dip to around $620 billion, indicating the high cost of defending the currency against strong market currents. Traders should therefore expect interventions to cap sharp spikes, but not to reverse the underlying depreciating trend while oil stays elevated.
Despite the currency pressure, India’s strong macroeconomic fundamentals, with GDP growth projected near 6.8%, provide a floor for the Rupee. A sudden, sustained drop in global oil prices or a significant shift in foreign investor sentiment could quickly alter this outlook. For now, however, the path of least resistance for the Rupee appears to be sideways to weaker.
