Mumbai: The rupee has recorded its steepest annual fall in over a decade, declining 9.88 per cent against the US dollar in FY26, as global shocks, rising crude oil prices and sustained capital outflows combined to keep the currency under pressure. The depreciation marks the sharpest drop in 14 years, approaching levels last seen in FY12 when the rupee had weakened 12.4 per cent amid a widening current account deficit of 4.2 per cent.
The slide in FY26 has been shaped largely by external factors, including geopolitical tensions, elevated energy prices and tightening global liquidity, alongside a strengthening US dollar. Market participants said the pressure intensified after the United States imposed tariffs on India, triggering a surge in dollar demand and prompting sustained foreign capital outflows from domestic equity and debt markets.
The situation worsened following the escalation of conflict in West Asia, which entered its 31st day and pushed crude oil prices higher, adding to volatility in currency markets. Brent crude was trading at USD 114.97 per barrel, up 2.60 per cent, while safe-haven demand kept the dollar index firm above the 100 mark, limiting any meaningful recovery in the rupee.
On Monday, the rupee breached the psychological 95-per-dollar level in intra-day trade, hitting a record low of 95.22 before recovering partially. It eventually settled at 94.70, gaining 15 paise from its previous close of 94.85. During the session, the currency witnessed sharp swings of 165 paise, reflecting heightened volatility in global markets.
The trading day began on a stronger note, with the rupee opening at 93.62 and briefly rising to 93.57 after the Reserve Bank of India introduced fresh measures to curb speculation. However, gains were quickly erased due to strong dollar demand from oil companies and persistent external pressures.
The central bank has intervened heavily to stabilise the currency, selling USD 55.073 billion in the spot market up to January in FY26. It has also tightened regulatory norms by capping banks’ net open positions in the onshore currency market at USD 100 million, effective April 10. The move is aimed at limiting large speculative bets against the rupee and reducing excessive volatility.
Despite these efforts, the rupee has repeatedly tested record lows during the fiscal year. On Friday, it had already plunged 89 paise to close at an all-time low of 94.85 before Monday’s volatile session.
Foreign institutional investor activity has further weighed on sentiment, with net equity outflows of Rs 11,163.06 crore recorded on Monday alone. Domestic equity markets mirrored the risk-off mood, with the Sensex falling 1,635.67 points to 71,947.55 and the Nifty dropping 488.20 points to 22,331.40.
Officials have maintained that the currency remains broadly stable relative to global peers. Finance Minister Nirmala Sitharaman said India’s economic fundamentals remain strong and that the rupee is “absolutely going fine” compared to other emerging market currencies. Minister of State for Finance Pankaj Chaudhary noted that the rupee’s value is market-determined and influenced by multiple global and domestic factors, adding that authorities are closely monitoring developments.
Other Asian currencies have also weakened against the dollar since April 1, with the Japanese yen falling 6 per cent, the Philippine peso declining 5.74 per cent and the South Korean won slipping 2.88 per cent.
According to Sunal Sodhani, head of treasury at Shinhan Bank India, FY26 represents a “perfect storm” driven by external shocks, capital outflows and structural vulnerabilities. He noted that unlike FY12, when domestic factors played a larger role, the current depreciation is being driven by global forces such as oil prices, geopolitics and capital flight, compounded by India’s import dependence.
Since the onset of the West Asia conflict on February 28, 2026, the rupee has weakened by 4.1 per cent, closing at 94.82 on March 27. Analysts expect continued volatility in the near term, with the currency likely to trade in a broad range of 92 to 97 against the US dollar, depending on oil prices, capital flows and global interest rate trends.