Indian Rupee Weakens Amidst Global Tensions and Inflation Concerns
As rupee nears 100-per-US dollar mark, focus on inflation, energy bills
Image: Deccan Herald
The Indian Rupee has depreciated by approximately 7% against the US dollar in 2026, exacerbated by the Iran conflict and rising energy prices. Analysts predict the rupee may hit the psychological mark of 100 per dollar, raising concerns over inflation and import costs. The Reserve Bank of India is actively intervening to stabilize the currency.
- 01The rupee has depreciated by about 12% since April 2025, with a significant drop of 5% following the Iran war outbreak on February 28.
- 02Foreign portfolio investors have withdrawn ₹2,22,343 crore (approximately $27 billion USD) from Indian markets in 2026, surpassing the total for 2025.
- 03Arvind Panagariya, former vice-chairman of NITI Aayog, argues that the rupee should be allowed to depreciate further without concern for the 100 per dollar mark.
- 04Despite the depreciation, Panagariya believes the Indian economy can absorb inflationary pressures better than in 2013, when inflation was in double digits.
- 05The Reserve Bank of India has intervened to support the rupee, which is expected to trade between ₹95.00 and ₹95.90 in the near term.
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The Indian Rupee has faced substantial depreciation, losing around 7% of its value against the US dollar in 2026, primarily due to foreign capital outflows and the impact of the ongoing conflict in West Asia, particularly the Iran war. The rupee's value fell from approximately ₹91 on February 27 to nearly ₹97 by May 19, with a 12% decline since April 2025. Analysts are now predicting that the rupee could reach the psychological threshold of ₹100 per dollar, which raises concerns about rising import costs and inflation. The Reserve Bank of India (RBI) has been actively intervening in the currency market to stabilize the rupee amidst these pressures. Arvind Panagariya, an economist, suggests that the RBI should not overly focus on the rupee's depreciation and believes the economy is well-equipped to handle some inflationary impacts. Meanwhile, foreign portfolio investors have pulled out a staggering ₹2,22,343 crore (approximately $27 billion USD) from Indian markets this year, indicating a lack of confidence in India's economic prospects compared to other markets. The RBI's interventions have provided some short-term relief, with expectations that the rupee will stabilize between ₹95.00 and ₹95.90 in the near future.
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The depreciation of the rupee will lead to increased costs for imports, particularly oil and gas, which could contribute to higher inflation rates.
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