Mumbai, Mar 30: The Indian rupee depreciated 9.88 per cent against the US dollar in FY26, marking the sharpest decline against the greenback in 14 years.
Historical comparison and key drivers
In FY12, the domestic currency declined by 12.4 per cent against the dollar at a time when the current account deficit had widened to 4.2 per cent.
In the current fiscal year, the steep depreciation was driven by persistent foreign fund outflows, elevated crude oil prices, and a strengthening dollar globally. Volatility in global financial markets and tightening liquidity conditions further weighed on the rupee in FY26.
Asian currencies under pressure
Other Asian currencies have also seen a sharp depreciation against the US dollar, with the Japanese Yen falling by 6 per cent, the Philippine Peso by 5.74 per cent, and the South Korean Won by 2.88 per cent since April 1, according to market participants.
Expert insights on depreciation
South Korean lender Shinhan Bank's head of treasury in India, Sunal Sodhani, said FY26 was a "perfect storm" of external shocks, capital outflows, and structural vulnerabilities, and added that the factors leading to the influence in FY26 are different from those in FY12.
"Unlike FY12 (which was more domestic plus taper tantrum-led), FY26 depreciation is externally driven by oil, geopolitics, capital flight, and amplified by India's import dependence," Sodhani said.
Triggers: tariffs and West Asia conflict
The initial depreciation of the currency in FY26 was triggered after the US imposed tariffs on India, which led to a sharp surge in demand for dollars.
The situation was further worsened by the conflict in West Asia, which pushed crude oil prices significantly higher, intensifying pressure on the rupee.
The tariffs also mounted pressure on domestic equities and debt markets, leading to sustained foreign capital outflows. Since then, the rupee has been hitting successive record lows, slipping to an all-time low of 95 against the US dollar, despite the Reserve Bank of India's intervention in the foreign exchange market.
RBI intervention and regulatory steps
To support the currency, the central bank has sold USD 55.073 billion in the spot market till January in FY26.
The RBI has announced a regulatory measure aimed at curbing excessive speculation to address the currency's fall.
On Friday, the RBI said banks can hold only up to USD 100 million in net open positions in the onshore currency market at the end of each trading day. The rule, effective April 10, will force lenders to reduce these positions and limit their ability to take large, one-sided bets against the rupee.
Market reaction and volatility
This move by the central bank helped the currency to appreciate sharply in the morning trade on Monday, but most of the gains were reversed due to heavy demand for the dollar from oil market companies, market participants said.
The currency breached the psychological mark of 95 against the greenback intra-day, but pared all losses to close 7 paise higher at 94.78 against the dollar.
Forex traders said the USD/INR pair witnessed high volatility and swung 165 paise during intra-day trade as the West Asia crisis entered its 31st day, keeping energy markets nervous.
"Rupee rose, but again fell due to some big corporate buying, squaring up of position in NDF, nationalised banks buying, and oil companies buying," said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP.
Also Watch:
Outlook for FY27
Experts believe that the local currency may trade in the range of 92-97 against the US dollar.
"Outlook depends on three variables: oil, flows, and global rates. The new normal is higher volatility plus gradual depreciation, not stability around a fixed band. In FY27, for the USD/INR pair, 92-97 remains the broader range play," Sodhani added.
(Disclaimer: Except for the headline, this article has not been edited by FPJ's editorial team and is auto-generated from an agency feed.)
