The Indian rupee breached the 87.50 mark against the US dollar on Tuesday, hitting a fresh all-time low amid sustained foreign investor selling, elevated crude oil import costs, and global risk aversion triggered by the US trade war. The currency has depreciated 4.2% in 2026, making it one of the worst-performing Asian currencies this year.
Why Is the Rupee Falling?
- FII Outflows: Foreign investors have withdrawn over Rs 1.2 lakh crore from Indian equities and Rs 15,000 crore from bonds in 2026, creating massive dollar demand
- Strong US Dollar: The Dollar Index (DXY) has strengthened to 105.2 as the Fed signals it may hold rates higher for longer given sticky US inflation at 2.8%
- Trade War: Uncertainty over US reciprocal tariffs on Indian goods is deterring fresh foreign investment flows
- Oil Imports: Brent crude at $73 per barrel and India importing 85% of its oil needs creates structural dollar demand
RBI Intervention
The RBI has been actively intervening to slow the pace of depreciation, selling an estimated $12 billion from forex reserves since January. Total forex reserves have declined from $658 billion to $636 billion. However, the central bank appears to be managing the pace of depreciation rather than defending a specific level.
Impact on Different Stakeholders
IT Companies (Positive): Every 1% rupee depreciation boosts IT sector earnings by approximately 0.4%. TCS, Infosys, and Wipro benefit as revenue is earned in dollars but costs are in rupees.
Importers (Negative): Companies dependent on imported raw materials face higher costs. Oil marketing companies, electronics manufacturers, and gold importers are worst hit.
Students Abroad: Education expenses for students in the US, UK, and Canada have risen 4-5% in rupee terms. Annual cost of studying in the US now exceeds Rs 45-50 lakh for most programs.
Travelers: A US trip that cost Rs 3 lakh a year ago now costs Rs 3.13 lakh at current exchange rates.
Outlook
Most currency strategists expect the rupee to trade in the 86.50-88.50 range through Q2 2026, with the trajectory heavily dependent on the tariff outcome and FII flow reversal. A positive tariff resolution could see the rupee strengthen to 85-86 levels.