The Indian Rupee (INR) traded close to its all-time low against the US Dollar (USD) in opening trade on Friday, with the USD/INR pair rising to near 95.95. This weakness is attributed to intense selling pressure on the Rupee, driven by concerns over India's foreign exchange reserves following the government's decision to increase import tariffs on Gold and Silver from 6% to 15% as announced early Wednesday. The move aims to discourage the public from purchasing precious metals and ease pressure on forex reserves. Prime Minister Narendra Modi also urged citizens to postpone non-essential gold purchases for a year. Gold accounts for over 9% of India's total imports, and the country's imports in 2025-26 were reported at USD 775 billion [1].
Investor sentiment has been negatively impacted by worries about the adequacy of India's forex reserves to cover imports. In addition to the import duty hike, the government raised petrol and diesel prices by Rs. 3 per litre to partially offset the impact of a significant increase in crude oil prices. WTI Oil prices have surged nearly 70% this year to $98, with expectations of continued high prices due to the closure of the Strait of Hormuz amid Iran-US tensions. Historically, higher oil prices have adversely affected the Indian Rupee, as India relies heavily on oil imports [1].
Foreign Institutional Investors (FIIs) became net buyers in the Indian stock market on Thursday after seven consecutive days of net selling, but the net investment was only Rs. 187.46 crore, much lower than the previous seven-day average net selling of Rs. 4,144.01 crore. This marginal improvement in sentiment is linked to expectations that the Indian government and the Reserve Bank of India (RBI) may introduce new measures to attract foreign capital inflows, such as a possible cut in the 20% withholding tax on government bonds [1].
The US Dollar's strength, supported by multiple tailwinds, has also contributed to the upward movement in USD/INR, further pressuring the Indian Rupee [1].
CONCLUSION
The Indian Rupee's decline to near record lows reflects market concerns over India's forex reserves, exacerbated by higher import duties on precious metals and rising energy prices. While there are tentative signs of improved foreign investor sentiment, the outlook remains cautious amid persistent external pressures and potential policy responses from the government and RBI.