The Indian rupee has shown a notable recovery against the US dollar in May 2026, gaining ground after hitting a record low of 96.90 last week. This rebound follows a calendar year depreciation of approximately 6% for the currency.
Factors Behind the Rupee's Recent Gains
Several key elements are contributing to the rupee's renewed strength:
Reserve Bank of India's Intervention and Stance
The Reserve Bank of India (RBI) played a crucial role by actively selling dollars in the foreign exchange market, a move designed to stabilize the currency. RBI Governor Sanjay Malhotra commented on the rupee's valuation, stating, "With the recent depreciation, it would be reasonable to think that the rupee is not overvalued. If anything, one could argue that the rupee has become undervalued, both in nominal as well as in REER (real effective exchange rate) terms."
The central bank's policy is not to target a specific price level or band but to curb excessive volatility and ensure orderly market movement. Malhotra reiterated, "The central bank would do whatever is required to ensure orderly price discovery in the forex market." India's robust forex reserves, standing at around $700 billion, provide the RBI with ample confidence and capacity for such interventions.
Easing Global Crude Oil Prices
Another significant factor is the sharp decline in global crude oil prices. This dip is largely attributed to rising hopes of a peace deal progressing between the US and Iran. As India is a major importer of oil and gas, falling crude prices are a substantial positive, reducing the country's forex pressures and easing the demand for dollars.
RBI's Financial Strength and Support
The RBI has also demonstrated strong financial health, announcing a record transfer of Rs 2.87 lakh crore in surplus to the union government for the financial year 2025-26. This transfer, while higher than the previous year's Rs 2.69 lakh crore, was slightly below the government's budget estimate.
Furthermore, the RBI has significantly bolstered its Contingent Risk Buffer (CRB), transferring Rs 1.09 lakh crore for 2025-26, more than double the Rs 44,862 crore allocated in 2024-25. Devendra Kumar Pant, chief economist at India Ratings and Research, noted that "transferring a higher amount to the CRB would help RBI intervene in the financial market depending on evolving macroeconomic conditions."
Madhavi Arora, lead economist at Emkay Global Financial Services, highlighted that the healthy dividend was primarily "driven by higher interest income from G-secs (government securities) and strong foreign exchange income supported by gross forex sales of $180 billion in FY2026."
The rupee closed at 96.37 against the greenback on Thursday, May 21, and further recovered to 95.69 on Friday, May 22. On Monday, May 25, it opened with further gains at 95.34 and touched a high of 95.20, signaling continued positive momentum.