The Indian rupee plunged to a historic low of 96.25 against the US dollar in early trading on Monday, marking a significant depreciation. Economist Kaushik Basu issued a strong caution, stating that the currency's fall is not merely a consequence of the ongoing global conflict but signals deeper economic vulnerabilities.
Basu emphasized that the current economic climate demands a shift from political discourse to concrete policy action. He highlighted that the Indian rupee has shed 11.2% of its value against the US dollar over the past year. Crucially, he pointed to a near-zero net foreign direct investment (FDI) into India over the last 22 months as a critical underlying factor. Left unaddressed, Basu warned, this trend is likely to fuel inflation.
Market Pressures and Global Factors
The rupee's weak opening, at 96.19, quickly deteriorated to 96.25, dropping 44 paise from its previous close. This downturn is attributed to a confluence of factors including elevated crude oil prices, prevailing global uncertainty, and a strengthening US dollar.
Further exacerbating the situation, the dollar index, which gauges the greenback's performance against a basket of six major currencies, was trading higher at 99.32. This uptick was partly driven by escalating tensions in Iran. Concurrently, Brent crude, the international oil benchmark, saw its futures trading 1.83 percent higher at USD 111.26 per barrel, adding pressure on India, a major oil importer.
Expert Outlook and Future Projections
Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, commented on the dire situation. He suggested that only a cessation of the conflict and the reopening of the Strait of Hormuz could alleviate the demand pressure on the dollar/rupee pair. Without significant intervention, such as schemes from the Reserve Bank of India (RBI) to boost dollar inflows, Bhansali cautioned that the rupee could soon hit the 100 mark.
Despite the current decline, a report from BMI, a unit of Fitch Solutions, had previously projected the rupee to trade broadly sideways and conclude 2026 at approximately 95 per US dollar, indicating a potential stabilization or slight recovery from the current record lows.