Rupee Breaches 95 For The First Time: Know Key Factors Why It Lost Early Gains To Hit New Record Low

The Indian rupee reversed sharply on Monday, erasing strong opening gains to hit a fresh all-time low of 95.22 against the US dollar, as global and domestic pressures outweighed the initial boost from the Reserve Bank of India’s (RBI) tightening of forex position limits.

At the interbank foreign exchange, the rupee had opened on a strong footing at 93.62 and strengthened further to 93.57 — a gain of over 1.3% from Friday’s close of 94.85 — after the RBI’s late-Friday directive aimed at curbing speculative positions in the forex market. However, the momentum proved short-lived.

At around 3 pm, the rupee pared its initial gains to hit a historic low of 95.22 in intra-day trade on Monday.

Why Rupee Lost Early Gains

The initial rally faded quickly as multiple macro factors reasserted

pressure on the currency.

1. Surge in Crude Oil Prices

Brent crude climbed sharply to around $115 per barrel amid escalating geopolitical tensions in West Asia. For India, a major oil importer, rising crude prices worsen the current account deficit and increase dollar demand, directly weakening the rupee.

2. Strong Dollar Environment

The dollar index remained firm above the psychologically important 100 mark, supported by safe-haven demand. A stronger dollar globally reduces appetite for emerging market currencies like the rupee.

3. Geopolitical Uncertainty

Ongoing tensions in West Asia have triggered risk aversion across global markets. This has led to capital outflows from emerging markets, including India, putting additional pressure on the rupee.

4. Equity Market Weakness and FII Outflows

Domestic equities saw a sharp sell-off, with the Sensex plunging nearly 1,700 points and the Nifty falling about 500 points. Foreign institutional investors (FIIs) remained net sellers, adding to dollar demand.

“Rupee makes a new low of 95.22 as continued buying interest in the non-deliverable forwards (NDF) market prompted traders to square off positions in the onshore market,” Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors LLP, said.

RBI Move: Impact Limited in Near Term

The RBI’s decision to cap banks’ net open forex positions at $100 million initially triggered optimism, as it was expected to reduce speculative bets and bring stability to the currency.

However, the market reaction suggests that structural global pressures outweighed regulatory tightening. While the move may reduce volatility over time, it could not offset immediate external shocks such as oil prices and dollar strength.

On Friday, the rupee slumped by a massive 89 paise to close at a historic low of 94.85 against the US dollar.