The domestic currency is facing pressure from a renewed rise in crude oil prices and a broadly stronger US dollar, while market participants are also watching for continued intervention by the Reserve Bank of India (RBI) to limit volatility.
The currency has remained close to the 96-per-dollar level in recent sessions, with traders attributing some of the support at these levels to RBI intervention.
Why is the rupee under pressure?
Crude oil prices have risen again
Brent crude prices have moved back above the $100-per-barrel mark. Higher oil prices can put pressure on the rupee because India imports a large share of its crude oil requirement. An increase in the country’s oil import bill can raise demand for dollars and weigh on the domestic currency.
Oil prices are also being influenced by developments around the US-Iran conflict. While Iran has indicated that it remains open to diplomacy, the two sides remain apart on the terms for ending the conflict, keeping geopolitical and supply concerns in focus.
Stronger dollar and higher US yields
The US dollar has strengthened after stronger-than-expected US purchasing managers’ data revived concerns over inflation and increased expectations of higher US interest rates.
US Treasury yields also rose sharply. The 10-year Treasury yield was more than 15 basis points above its Tuesday closing level, while the five-year yield moved above 5% for the first time since 2007. Higher US yields can support the dollar by making US assets relatively more attractive to global investors.
MUFG analysts said the broader backdrop for Asian currencies remains challenging, particularly for currencies that are more vulnerable to higher energy prices.
Foreign investor outflows
Foreign investors have remained a source of pressure on the rupee. They have reportedly sold around $3.5 billion worth of Indian stocks and bonds so far in September.
On Wednesday (September 23), however, foreign institutional investors were net buyers of Indian equities worth ₹1,617.45 crore, according to exchange data.
RBI intervention remains a key factor
While external factors have weighed on the rupee, RBI intervention has helped limit sharper declines in recent sessions, according to traders.
RBI Deputy Governor Poonam Gupta said on Wednesday (September 23) that there was a case for the rupee to stabilise and potentially appreciate from current levels. She also described the weakness seen in the currency since March 2025 as a temporary phenomenon, while pointing to a disconnect between India’s economic performance and parts of the financial markets.
The comments come as the rupee continues to trade close to the 96-per-dollar level despite relatively strong domestic economic conditions.
What could influence the rupee next?
The direction of crude oil prices, the dollar index, US interest-rate expectations and foreign capital flows are likely to remain important for the rupee in the near term. Any escalation in US-Iran tensions could add pressure through higher oil prices, while signs of a diplomatic resolution could improve global risk sentiment.
For Indian consumers and businesses, sustained rupee weakness can increase the cost of imported goods and inputs, particularly crude oil and other commodities. It can also affect overseas education, travel and other dollar-denominated expenses. On the other hand, exporters can benefit from a weaker rupee when their foreign-currency earnings are converted into rupees.
-With agencies inputs