India’s Rupee Trims Losses After Record Low as Oil Rally Fades
India’s rupee slid to a record low on Thursday as a surge in crude prices rattled markets, before paring most of its losses after oil retreated from a four-year high.
The currency closed at 94.92 per dollar, recouping most losses after sliding as much as 0.5% to 95.3337 earlier in the day, breaching its previous low of 95.1250 hit in late March. The rupee has now erased all gains fueled by the central bank’s crackdown on speculative bets. The 10-year bond yield rose two basis points to 7.02%.
The Reserve Bank of India recently to stamp out speculation, yet the gains that followed have proved short-lived. With the US-Iran war — now entering a third month — keeping oil prices elevated, and capital inflows muted, economists are widening their estimates of the nation’s balance of payment deficit.
Kotak Mahindra Bank pegs the gap at $50 billion this fiscal year, versus deficits of $39 billion and $5 billion in the previous two years. IDFC First Bank sees it widening to $40 billion—$50 billion from an estimated $35 billion in the prior period.
“The fundamental balance of payments picture continues to look weak, so the pressure on the rupee may persist,” said Rahul Bajoria , head of India economics research at BofA Securities India. “The RBI’s steps do provide relief, but we do not know if their efficacy will remain the same over a longer period.”
This would be a record third straight financial year that the balance of payments — the broadest gauge of money flowing in and out of the economy — remains in deficit.
Brent eased below $117 a barrel after topping $126 earlier in the session, as an initial surge driven by an Axios report that US President Donald Trump would be briefed on new military options for Iran faded.
The energy shock has coincided with global funds dumping local stocks, citing high valuations and limited artificial intelligence-linked opportunities. In the first four months of 2026, they pulled nearly $20 billion from equities, topping last year’s full-year record outflow. Net foreign direct investment was also negative for six straight months, before rebounding in February.
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Against that backdrop, the RBI has relied on dollar sales as its first line of defense. India’s forex reserves stand at $703 billion, though a negative $78 billion forward book — reflecting future dollar obligations — limits the central bank’s flexibility. On Thursday, the central bank sold dollars to support the rupee, traders said.
“RBI will need to use forex reserves carefully while defending the rupee,” said Gaura Sen Gupta , chief economist at IDFC First. Another constraint for the authority is its large negative forward position, which makes it harder to manage the impact of its interventions in the currency market, she said.
These pressures test how far the central bank’s current playbook can go, especially as some of its tools — like intervening forcefully in currency markets — carry their own side effects.
Most analysts expect the rupee to stay on a weaker path. BofA has lowered its rupee forecast to 94 per dollar by mid-year from 89 earlier. IDFC First Bank Ltd. sees the unit weakening to 95-96 range despite the RBI’s support, while Barclays Bank Plc has a year-end forecast of 96.80.
Meanwhile, strategists are looking up the RBI’s previous playbook to assess what measures it could take to support the currency. The central bank will step in to curb excessive volatility to keep speculation from driving the rupee beyond fundamentals, Governor Sanjay Malhotra said at the April policy review.
“The problem is, INR depreciation expectations are so widespread and broad-based that exporters are stayed away while importers continue to hedge,” said Dhiraj Nim , forex strategist at Australia and New Zealand Banking Group in Mumbai. “The RBI will continue intervening — their intervention has greater value now that arbitrage trade loop is broken.”
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If oil averages $85—$90 a barrel through fiscal 2027, the RBI may need to look at steps such as easing borrowing rules to boost dollar inflows and pushing exporters to bring back earnings faster, according to Standard Chartered Plc economists including Anubhuti Sahay . If prices top $95, the central bank may have to hike policy rates by at least 50 basis points to contain the impact on the broader economy, they wrote in a note.
“A comprehensive set of measures is required,” State Bank of India Chief Economic Adviser Soumya Kanti Ghosh wrote in a note. The “exchange rate cannot be construed as a shock-absorbing mechanism in perpetuity.”
