MUMBAI: The rupee hit a record low on Friday, breaching the 94 mark against the dollar for the first time to trade at 94.29, as foreign portfolio investors continued to pull out of Indian markets and importers hedged positions ahead of the financial year-end.For FY26 ending March 2026, the rupee has depreciated by around 9%, making it one of its worst annual declines in decades. As of late March 2026, the USD/INR exchange rate is trading around 94.30. According to market data, the sharp fall is being driven by the escalating US-Iran conflict. Brent crude has surged past $110 per barrel amid threats to the Strait of Hormuz, which has increased pressure on the currency given India’s dependence on oil imports.
Foreign portfolio investors, who have sold over $10bn worth equities in India in the month of March, continued to sell dragging down the Sensex by 1282 points to 73,990.62 in late morning trade.Dealers said that the trades the gap opening was because of the shift in trading from March contract to April contracts. In forex markets trades are done through contracts that expire at the end of a specific month. As March ends, traders stop using March contracts and shift to April contracts with the exchange rate reflecting the change in pricing for contracts.
Global currency trends in FY26 show divergence between longer-term movements and recent geopolitical shifts. For most of 2025, the US dollar was in a structural bear phase. The US Dollar Index depreciated by over 9% due to concerns over the US fiscal deficit and the Federal Reserve’s rate-cut cycle. As a result, major developed currencies such as the euro and the British pound appreciated against the dollar during the year.The outbreak of conflict in West Asia has reversed this trend in the short term. The dollar has gained on safe-haven demand, leading to declines in other currencies. The euro and Japanese yen have fallen around 2% each against the dollar since the conflict began. The pound has declined around 1%, while the Brazilian real has dropped around 3.6% amid emerging market outflows.The rupee’s depreciation of around 9% against the dollar in a year when the dollar itself weakened against European currencies indicates underperformance against global peers.
While the euro and pound strengthened globally, the rupee weakened, leading to sharper depreciation in cross rates such as EUR/INR and GBP/INR. According to analysts, the rupee has decoupled from broader emerging market trends due to its dependence on oil imports.A sharply weaker currency has widened macroeconomic pressures. India imports over 80% of its crude oil requirement. A 9% depreciation combined with crude prices above $110 per barrel has increased costs across fuel, logistics, and raw materials such as fertilizers and edible oils, adding to inflation.The current account deficit has also widened. According to data, export gains from currency depreciation have remained limited due to weak global demand. At the same time, imports of oil, gold, and electronics have increased, pushing the deficit higher in the final quarter of FY26.Liquidity conditions have tightened as the RBI intervened to curb volatility. According to estimates, the central bank sold around $53 billion between April and Dec 2025.
This reduced rupee liquidity and pushed up bond yields. The yield on the 10-year Govt bond has risen to 6.78%, the highest since early 2025. This has led banks to increase interest rates, raising borrowing costs for consumers and companies.Corporate balance sheets have come under pressure. Firms dependent on imported inputs or unhedged external commercial borrowings have seen higher costs and margin compression.
In contrast, export-oriented sectors such as IT services and pharmaceuticals have benefited as dollar revenues translate into higher rupee earnings.Risks have also emerged for remittance inflows. India receives around $140–$145 billion annually in remittances, largely from the Gulf region. According to analysts, a prolonged conflict in West Asia could affect employment in construction and energy sectors, raising the risk of reverse migration and lower inflows.
