Why the rupee is sliding against the US dollar in 2026

India’s rupee fell to a record low for a sixth consecutive day in 2026, reaching 96.47 per US dollar, marking a 7% depreciation this year and a 6.1% drop since the Iran conflict escalated in late February. The currency’s decline reflects structural pressures, including high oil prices, foreign portfolio outflows, and a widening trade deficit. The rupee’s drop is directly linked to India’s reliance on imported crude, with over 88% of its oil needs met through imports. Rising global oil prices—Brent crude trading near USD 110 per barrel—have inflated India’s import bill, forcing refiners to spend more dollars and widening the trade deficit. In April alone, India spent USD 18.7 billion on crude oil imports, exacerbating currency strain. Foreign investors have withdrawn USD 23.2 billion from Indian equities and bonds in 2026, surpassing last year’s total, as geopolitical tensions and elevated US interest rates push capital toward safer assets. This outflow has increased dollar demand and weakened the rupee, which is among the worst-performing emerging-market currencies this year. Gold imports have also contributed to pressure on the rupee, with India’s gold purchases surging 81.69% year-on-year to USD 5.62 billion in April. The government responded by raising customs duties and imposing restrictions to curb imports, though the impact on the current account deficit remains a concern. A widening trade deficit further weakens the rupee, as imports grew 10% year-on-year to USD 71.94 billion in April, inflating the deficit to USD 28.4 billion. The combination of oil costs, capital flight, and trade imbalances has raised fears of inflation and a potential breach of 100/USD, prompting policymakers to monitor the situation closely.