3 min readMay 6, 2026 06:15 AM IST
First published on: May 6, 2026 at 06:15 AM IST
The Indian rupee continues to weaken. On Tuesday, it hovered around 95.36 against the dollar during early trading. Since the beginning of this year, the currency has fallen by around 5.64 per cent. Sentiment continues to be weighed down by the conflict in West Asia, with fresh attacks rattling investors. But the pressure on the Indian currency predates the Iran war. Last year, the rupee fell by roughly 5 per cent against the dollar. The problem is on both the current and capital accounts.
Global crude oil prices remain elevated due to energy market dislocations, exerting pressure on the current account. Brent crude is currently around $113 per barrel. In April, the price of the Indian crude oil basket averaged $114.48 per barrel, according to data from the Petroleum Planning and Analysis Cell. There is the possibility of the current account deficit widening to around 2 per cent in 2026-27. While this is considerably lower than that around the period of the taper tantrum — the deficit had widened to 4.8 per cent of GDP in 2012-13 — financing it will be challenging in the current environment. Capital flows are under pressure. So far in the calendar year, foreign portfolio investors have taken out around $21.2 billion from the stock markets. This comes after outflows of $18.9 billion last year. While the central bank has been taking steps to ease the stress on the rupee, its short dollar book has swelled, the pressure on the currency continues. In previous episodes of such stress, the RBI attempted to facilitate capital inflows through various instruments. For instance, during the taper tantrum, funds were mobilised through the FCNR-B deposits.
So far, retail fuel prices have not been adjusted to reflect the higher global prices. But there are limits to the burden that can be borne by the oil companies and the government — the war has been going on for more than two months. Higher prices at the pump will push up retail inflation across the country — retail inflation edged up to 3.4 per cent in March. A few days ago, the price of the commercial LPG cylinder was raised by Rs 993, which will translate to higher input costs for restaurants, hotels, commercial kitchens etc, feeding price pressures. A prolonged conflict will impact economic momentum, worsening the growth-inflation dynamics. The macroeconomic situation calls for deft and delicate management.
