Mumbai, October 7, 2026: The Indian rupee came under renewed pressure on Wednesday, falling close to its record low against the US dollar despite the Reserve Bank of India raising its benchmark interest rate by 25 basis points. The currency touched an intraday low of ₹96.8450 per US dollar, narrowly missing its May record low of ₹96.96, before ending the session at around ₹96.78.
RBI Raises Repo Rate to 5.50%
The Reserve Bank of India raised the repo rate from 5.25% to 5.50%, marking its first rate increase in nearly four years. The six-member Monetary Policy Committee unanimously backed the rate hike as policymakers responded to renewed inflation risks, higher energy prices and strong domestic economic growth.
The RBI also changed its policy stance from “neutral” to “calibrated tightening.” The shift indicates that additional rate increases remain possible if inflationary pressures persist, although the central bank signalled that future decisions will depend on economic data and evolving conditions.
Why the Rupee Continued to Fall
Normally, higher interest rates can support a country’s currency by making domestic financial assets more attractive to investors. However, traders said the RBI’s decision was largely anticipated and therefore failed to provide the rupee with a significant boost.
External pressures remained considerably stronger. Crude oil prices moved above $100 a barrel, increasing concerns about India’s import bill because the country remains heavily dependent on imported energy. A stronger US dollar, elevated global bond yields and continued foreign portfolio outflows also increased demand for dollars.
The rupee has now declined roughly 7.5% to 7.7% during 2026, putting it among Asia’s weakest-performing currencies this year. Persistent foreign investment outflows have added further pressure, while companies’ demand for dollars has contributed to volatility in the currency market.
RBI Signals Support for the Currency
Despite the rupee’s weakness, RBI Governor Sanjay Malhotra said the currency could be undervalued when assessed through measures such as the real effective exchange rate, or REER. He said financial markets can behave irrationally over shorter periods while currencies tend to move toward their appropriate value over the longer term.
The central bank has also been intervening in the foreign-exchange market to prevent excessive volatility. Reuters reported that the RBI has used dollar sales and other liquidity measures as pressure on the currency intensified.
Inflation and Growth Complicate the Outlook
The RBI’s decision reflects a difficult balancing act. India’s economy continues to show resilience, with the central bank raising its FY27 growth forecast to 7.1% from 6.7%. At the same time, the RBI increased its inflation forecast to 5.2% from 5%, highlighting the impact of higher energy and food costs.
For consumers and businesses, higher interest rates could gradually increase borrowing costs for loans while potentially improving returns on some deposits. For import-dependent companies, however, a weaker rupee can increase the cost of overseas purchases and add to inflationary pressures.
What Comes Next for the Rupee
Markets are now watching crude prices, foreign capital flows, US interest rates and the RBI’s future policy decisions closely. Analysts expect the rupee to remain volatile in the near term, with some forecasts placing it within a range around ₹96–₹97 against the dollar.
The key question is whether the RBI’s calibrated tightening cycle, combined with foreign-exchange intervention, can stabilise the currency while keeping India’s economic growth intact.
