Rupee hits record low: Oil price hike, foreign investment withdrawal add to pressure

 

 

Dr. Matthew Joys

The Indian rupee hit a historic low of 94.24 against the US dollar, its biggest single-year decline since the 'taper tantrum' of 2013. Global and domestic economic pressures have pushed the rupee to this unexpected low.

Key reasons behind the decline

Global crude oil prices have surged above $100 per barrel. As India imports over 80% of its oil requirements, the demand for the dollar has come under pressure.

Foreign institutional investors (FIIs) have pulled out a large amount of money from the Indian stock market. The rupee has been selling off over Rs 1.48 lakh crore since January 2025, leading to a fall in the value of the rupee.

The tensions in the Middle East and the global financial crisis have also strengthened the 'risk-off' sentiment. Investors have turned to the dollar as a safe haven.

In addition, higher imports of gold and electronics and slower export growth have widened the trade deficit.

Economic implications

The depreciation of the rupee is likely to increase domestic inflation by increasing the cost of imports, including fuel. This will increase costs for import-dependent industries.

On the other hand, it could be beneficial for export sectors such as IT, pharmaceuticals and textiles, as Indian products will become more competitive in the global market.

The Reserve Bank of India (RBI) is allowing the rupee to find its footing naturally without heavily intervening in the market. Experts believe that this is an approach that prioritizes growth.

What is rupee depreciation?

Rupee depreciation is the decline in the value of the Indian rupee against major foreign currencies such as the dollar.

Advantages and disadvantages

Advantages:

Exports increase; IT, pharma, and textile sectors benefit, remittances from abroad increase, and domestic production is encouraged.

Disadvantages:

Inflation will rise due to rising import costs

Repayment costs of foreign currency loans will increase

Current account deficit will increase

Foreign investor confidence may decrease

Consumer purchasing power will decrease

Global uncertainty, changes in oil prices, and foreign investment flows will continue to be key factors determining the direction of the rupee in the future.