Indian rupee hits record low as U.S.-Iran tensions lift oil and inflation worries

The Indian rupee fell to a record low against the U.S. dollar on Tuesday, May 5, sliding to 95.40 per dollar and down 0.3% on the day. The move took the currency past its previous all-time low of 95.33, as renewed U.S.-Iranian military action in the Gulf region rattled markets.

Brent crude has climbed from around $70 to near $115 a barrel since hostilities began in late February, adding to pressure on the oil-importing Indian economy. The rise in energy costs has worsened the outlook for India’s external balances and inflation, prompting some economists to raise current account deficit projections, trim growth forecasts and lisources inflation estimates.

UBS has revised its year-end rupee forecast to 96 per dollar from 94, while ANZ expects the currency to weaken to 98 by March 2027.

The Reserve Bank of India (RBI) has intervened in spot and forward foreign exchange markets to curb the rupee’s decline, contributing to a drop in foreign exchange reserves and a record increase in short dollar forward commitments above $100 billion.

The central bank is also studying steps to attract dollar inflows, including reviving a mechanism to draw deposits from non-resident Indians and potentially scrapping withholding tax on overseas bond investors.