Indian rupee hits record low as energy risks deepen, central bank likely cushions fall

MUMBAI: The Indian rupee fell to an all-time low on Thursday, pressured by stubbornly high oil prices and persistent foreign portfolio outflows that have led to a current and capital account strain for Asia’s third-largest economy.

The Indian rupee fell 0.1% to 95.8525 per U.S. dollar, eclipsing its previous record low of 95.7950 hit on Wednesday.

The currency has declined 1.4% so far this week and hit record lows in each trading session between Tuesday and Thursday.

India imports about 90% of its oil needs and about 50% of its gas requirements, leaving the currency particularly vulnerable among emerging markets if the Iran war drags on.

The central bank has so far sold down FX reserves and tapped rare regulatory measures to support the currency, which is Asia’s worst performer in 2026 so far.

On Thursday as well, dollar sales from state-run banks - most likely on behalf of the Reserve Bank of India – cushioned the rupee’s fall, traders said.

The country is facing a third consecutive year of a balance of payments deficit, prompting economists and traders to bake in expectations of persistent rupee weakness even as central bank interventions curb excessive volatility.

“India’s current account deficit appears set to exceed ~2% of GDP, which the RBI has historically identified as the threshold level that India can finance sustainably over the long term,” analysts at BofA Global Research said in a note.

Prime Minister Narendra Modi earlier urged citizens to conserve foreign exchange reserves, while the federal government has hiked tariffs on precious metal imports.

“Markets have been quite spooked by the shift in tone from policymakers,” a senior trader at a foreign bank said, referring to Modi’s remarks and signals from the oil minister that fuel prices may rise soon.

While India has so far kept fuel prices unchanged, the government may need to raise them if the conflict drags on, RBI Governor Sanjay Malhotra said earlier this week.

He added that monetary policy can look through temporary supply shocks but may need to act if inflation pressures become entrenched following the oil price spike.