A record low, and a rupee still sliding
The rupee broke through 96 per dollar in May 2026 for the first time. It touched an all-time low of 96.07 and became Asia's worst-performing currency of the year. By late May it had lost 7.04% in calendar 2026, already more than the full-year falls of 4.9% in 2025 and 2.9% in 2024. That makes two years running as the weakest currency in Asia.
Late August brought some relief. The rupee closed at 95.17 on suspected RBI intervention, and India's forex reserves hit a record $729 billion. The pressure has eased, but the direction of travel has not changed.
The usual suspects: oil, war and the dollar
Much of 2026's damage comes from outside India. The slide accelerated after the Iran war began, with a 5.01% fall between March 2 and May 21 as crude prices surged. India imports most of its oil, so every spike creates fresh dollar demand. A stronger greenback and safe-haven buying lifted the dollar across emerging markets as well.
Money is leaving: the foreign investor exodus.
The more telling driver is capital flight. Foreign investors pulled about ₹2.29 lakh crore from Indian equities in 2026, already more than the ₹1.66 lakh crore withdrawn in all of 2025, itself a record. Oil raises the import bill, but this outflow determines whether the dollars needed to pay it are available. Each rupee sold by a departing investor adds to the pressure that oil creates.
A tariff story that has changed
Trade policy hurt sentiment for much of the past year. Tariffs on most Indian exports reached 50%, combining a 10% baseline, a 25% reciprocal duty and a 25% penalty. The picture has since shifted. In February 2026, the government said the rate had been cut to 18% under an interim deal. The IEEPA tariffs that reached 50% ended on February 24, 2026, and most Indian goods now pay normal duty plus a 10% Section 301 duty. Tariffs fed the 2025 losses, but they cannot explain a fall that deepened after they were cut.
The Pakistan comparison
The sharpest signal is the cross-rate. On May 15, 2025, one Indian rupee bought 3.2913 Pakistani rupees. By May 18, 2026, it bought 2.9010, a fall of about 11.86%. Other outlets, measuring from the start of Operation Sindoor, put the drop near 13%. One rupee still buys more than two and a half Pakistani rupees, so the Indian currency remains the stronger of the two in absolute terms. What matters is the trend. Pakistan entered another IMF programme last year, and the PKR has held ground despite the same external shocks.
Two caveats apply. First, much of this comparison has been pushed by outlets with a political angle, so the arithmetic is more reliable than the framing. Second, a currency under an IMF programme is partly managed, so its stability reflects policy discipline as much as underlying strength. The comparison still carries weight, because both economies faced the same oil shock and only one currency fell so far.
What's specific to India
If oil and the dollar hit every importer, India's extra weakness has to come from elsewhere. Candidates include a wider current account deficit, thin and fickle portfolio inflows, and the RBI's heavy dollar selling to slow the fall. RBI reserves eased to about $682 billion by end-May from around $728 billion earlier in the year. Even so, this is not a collapse. The rupee is not expensive in real effective terms, and the RBI's outlook assumes growth near 6.9% and inflation at 4.6%. A softer rupee helps exporters and may be tolerable, but it carries costs for imported inflation, oil-dependent budgets and foreign-currency debt.
The bottom line
The dollar and the oil price explain how fast the rupee fell. They don't explain why it fell further than its peers, or why it lost ground against a neighbour's currency that was in far worse shape three years ago. That gap comes from capital flows and external balances, and it is the part policymakers can do something about. Investors would be wise to treat a structurally softer rupee as the base case rather than each new low as a surprise.
References:
- India Macro Indicators, "Rupee at Record Low in 2026: What Indian Investors Should Know" (June 15, 2026).
https://indiamacroindicators.co.in - Neo Politico, "Indian Rupee Becomes Asia's Worst-Performing Currency as It Falls Beyond 96" (May 18, 2026).
https://neopolitico.com - The Wire, "Rupee Has Depreciated 7.04% in 2026" (May 22, 2026).
https://m.thewire.in - Outlook Business, "Rupee rises 26 paise to close at 95.17 against US dollar" (August 2026).
https://www.outlookbusiness.com - ClearTax, "US Tariff on India: Impact, Affected Products, Rates" (July 2026). Note: This page contains conflicting statements on the current rate; cross-check against sources 6 and 7.
https://cleartax.in/s/us-tariff-on-india - All India Radio (newsonair), "India-US Trade Deal Cuts Tariff on Indian Exports to 18%: Piyush Goyal" (Feb 7, 2026).
https://www.newsonair.gov.in - Airlift USA, "US Tariffs on India 2026: Rates and Changes" (as of Sept 23, 2026).
https://airliftusa.com/tariff-updates/india - The Wire, "Indian Rupee Has Fallen by Nearly 12% Against Pakistani Rupee Since Operation Sindoor" (May 19, 2026).
https://m.thewire.in - ProPakistani, "Indian Rupee Down 12% Against PKR" (May 19, 2026).
https://propakistani.pk - The Thursday Times, "India's rupee is losing to Pakistan's" (May 23, 2026).
https://thursdaytimes.com