The Indian rupee declined by 20 paise to 95.43 against the US dollar on Tuesday, 5 May, as market sentiment remained weak amid escalating military tensions between the US and Iran in the Gulf region.
Experts noted that increased geopolitical uncertainty has prompted a move toward safety, with investors turning to the US dollar as their preferred safe-haven asset.
Additionally, rising Brent crude prices, which approached $113 per barrel, added to the strain on oil-importing countries like India. In the interbank foreign exchange market, the rupee started at 95.30 and fell to 95.43 in early trading, down 20 paise from its previous close.
On Monday, the domestic currency dropped by 39 paise, closing at an all-time low of 95.23 against the US dollar.
Energy shock could widen India’s external vulnerability risks
According to UBS Research, renewed geopolitical tensions in the Middle East have put the Indian rupee under sharp depreciation pressure, driven by a worsening terms-of-trade shock. This has raised concerns of a widening current account deficit, alongside near-record foreign portfolio investor (FPI) outflows of about $18.7 billion during March–April amid growth worries.
While India’s headline foreign exchange reserves remain comfortable at around $703 billion as of 17 April 2026, UBS estimates that usable reserves are closer to $600 billion after adjusting for the Reserve Bank of India’s net short forward positions.
UBS noted that the rupee’s underlying challenge lies in the balance of payments, suggesting that boosting capital inflows should be a key policy priority. So far, the RBI has focused on smoothing volatility, curbing speculation, and managing dollar demand—especially from oil importers—rather than tightening aggressively.
Meanwhile, Sunny Agrawal, Head of Fundamental Research at SBI Securities, said sustained elevated crude oil prices could significantly widen India’s import bill and current account deficit, further pressuring the rupee. He warned that prolonged currency weakness could trigger a cycle of FII outflows, exacerbating the decline. Agrawal added that stability in crude prices and policy measures to manage import costs will be crucial factors to watch going forward.
INR to stay weak amid elevated global risk aversion
India’s external vulnerability remains closely tied to crude oil prices, given that it imports nearly 88% of its requirements, with about half sourced from the Middle East. According to UBS Research, the current account deficit is expected to widen from 1.1% of GDP in FY26 to 2.5% in FY27, reflecting elevated oil prices and weaker exports to the GCC, which accounts for roughly 15% of India’s goods exports. While there is also a risk to remittance inflows—around 36% of which come from the GCC—any impact is likely to be gradual.
Despite the rupee’s real effective exchange rate falling to a 10-year low, UBS expects continued pressure and has revised its FY27-end USD/INR forecast to 96 from 94 earlier. It added that the Reserve Bank of India may need to revisit elements of its 2013 crisis toolkit to stabilise the currency.
Echoing similar concerns, Mohit Gulati, CIO and Managing Partner at ITI Growth Opportunities Fund, said India’s external position has “quietly widened,” with a thinner current account, softer remittances, and uneven FII flows acting as simultaneous headwinds. He added that while the RBI can manage volatility, sustained rupee stability will depend on stronger capital inflows driven by earnings recovery and geopolitical stability.
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