The Indian rupee extended its decline for a third consecutive trading session on Monday, October 26, as rising crude oil prices, increased demand for dollars and continued foreign investor outflows weighed on the domestic currency. The rupee settled at 95.1850 against the US dollar, marking a fall of around 0.3% during the session and taking its losses over three trading days to approximately 0.8%.
The latest decline reflects mounting pressure on India’s external finances as international oil prices remain elevated amid geopolitical tensions. With Brent crude trading close to $115 a barrel, concerns have intensified over the potential impact on India’s import bill, inflation and investor sentiment. The country relies heavily on imported crude oil, making its currency particularly vulnerable to sharp movements in global energy prices.
Brent crude prices have climbed in recent weeks amid concerns about possible disruptions to energy supplies following Houthi attacks on Saudi Arabia. The benchmark recorded its third consecutive weekly rise, gaining around 13% over the period. Although oil prices eased from their recent highs on Monday, they remained elevated, leaving markets cautious about the implications for energy-importing economies such as India.
Higher crude prices can increase the amount India spends on imports, raising demand for US dollars among companies that need to pay overseas suppliers. This can put additional pressure on the rupee, particularly when foreign capital inflows are insufficient to offset the demand. Expensive oil can also contribute to domestic inflation and complicate the economic outlook by increasing costs for businesses and consumers.
Foreign portfolio investor selling has added to the currency’s challenges. Overseas investors have sold nearly $5 billion worth of Indian equities so far in October, following net sales of around $3.75 billion in September, according to Reuters. Such outflows increase demand for foreign currency as investors convert their rupee holdings into dollars before moving funds out of the domestic market.
The selling pressure comes at a time when global investors are reassessing their exposure to riskier assets. Uncertainty surrounding geopolitical developments, energy prices and the outlook for interest rates has encouraged caution across financial markets. These conditions can make emerging-market currencies more vulnerable, particularly when investors favour assets perceived as safer.
The rupee had received some support last week from flows associated with the initial public offering of Jio Platforms and the unwinding of dollar positions after recent measures by the Reserve Bank of India. However, traders said that this support was not evident to the same extent on Monday, leaving the currency more exposed to dollar demand from importers and other market participants.
The Reserve Bank of India has intervened in currency markets in recent months to manage volatility and support the rupee. However, sustained pressure from oil prices and capital outflows can make it difficult to maintain a stable exchange rate over an extended period. Market participants are watching for signs of further central bank intervention while assessing whether incoming foreign investment can offset continuing outflows.
The movement of the US dollar and global bond yields remains another important factor for currency markets. Investors are preparing for the US Federal Reserve’s policy decision scheduled for Wednesday, with attention focused not only on the immediate rate decision but also on signals about the future direction of monetary policy. Any indication that US interest rates could remain elevated for longer may influence global capital flows and demand for the dollar.
For India, the combination of a weaker rupee and expensive crude presents a broader economic challenge. A depreciating currency makes dollar-priced imports more costly in rupee terms, potentially adding to inflationary pressures. Companies that depend on imported fuel, raw materials or overseas payments could face higher expenses, while the impact on household fuel costs will depend partly on domestic pricing policies and how international prices evolve.
Investors will also monitor developments in the Middle East, movements in crude oil prices and the direction of foreign portfolio flows for clues about the rupee’s near-term trajectory. While easing oil prices or renewed capital inflows could offer some relief, continued supply concerns and persistent dollar demand may keep the currency under pressure.
The rupee’s latest decline highlights the competing forces shaping India’s currency market. Until oil prices moderate or foreign inflows strengthen, the domestic unit is likely to remain sensitive to geopolitical developments and global monetary signals. The Federal Reserve’s upcoming decision and any fresh movement in energy markets are expected to be key factors influencing currency trading through the week.
