The rupee weakened to a record low of 96.88 against the US dollar on Wednesday, pressured by surging US bond yields, elevated crude oil prices and persistent strength in the dollar, as investors turned cautious on emerging-market assets.
The sharp fall in the domestic currency comes amid mounting concerns that global interest rates could remain elevated for longer, tightening liquidity conditions and triggering fresh capital outflows from riskier markets.
The yield on the US 30-year Treasury climbed to 5.18%, approaching levels last seen before the 2008 global financial crisis, after investors reassessed expectations around US monetary policy in the face of sticky inflation and geopolitical tensions linked to the Iran conflict.
The spike in Treasury yields strengthened the dollar further, putting renewed pressure on emerging-market currencies, including the rupee.
Analysts said the rupee is currently facing pressure from multiple global triggers, including a stronger dollar, rising US yields, expensive crude oil and persistent demand for dollars from importers.
Brent crude continued to trade above $110 per barrel, raising concerns over India’s import bill, inflation trajectory and current account deficit. Since India imports a majority of its crude oil requirements, sustained high oil prices tend to increase dollar outflows and weaken the domestic currency.
The rupee had weakened to an intraday low of 96.61 in the previous session before settling at 96.54, weighed down by importer dollar demand and weakness across regional currencies.
Rajesh Palviya, Head of Research at Axis Direct, said rising US bond yields have kept the dollar firm, pushing the rupee to fresh record lows and adding pressure on broader emerging-market sentiment.
“Rising US bond yields also kept the dollar firm, pushing the Indian rupee to fresh record lows against the greenback and adding pressure on emerging-market sentiment,” Palviya said.
Analysts also warned that persistent weakness in the rupee could increase imported inflation risks for India by making fuel, electronics and other overseas purchases more expensive.
Market participants expect the Reserve Bank of India to continue intervening intermittently in the currency market to curb excessive volatility and prevent disorderly movements in the rupee.
However, analysts said sustained pressure from global factors, especially elevated US yields and crude oil prices, could keep the rupee under stress in the near term.