Indian Rupee: Policy support falls short against Oil – Commerzbank

Commerzbank’s Charlie Lay highlights that Indian Rupee (INR) has weakened nearly 12% against the US Dollar (USD) over a year, making it Asia’s worst performer, driven by heavy equity outflows and higher Oil import costs. Despite stepped-up FX intervention, tighter Gold import rules and possible tax relief, with sustained high Oil likely to keep INR under pressure.

Rupee under pressure despite interventions

"The two key factors driving INR’s weakness include 1) sustained foreign equity outflows. Foreign investors have withdrawn over USD20bn in the first four months of this year, more than the total in 2025 of USD19bn, and 2) robust USD demand from oil importers facing a higher crude bill. The shift away from discounted Russian crude toward costlier Middle Eastern supplies, under the terms of the US trade deal, has also accentuated higher import cost pressures."

"In response, the authorities have progressively stepped up support for INR. They include direct FX intervention, forcing banks to unwind speculative long-USD positions, and tightening gold import regulations to reduce USD demand."

"Last week, the government raised the gold import tariff to 15% from 6% and capped gold imports at 100kg per license under the advance authorization scheme. There are also considerations of capital gains tax relief for foreign bond investors."

"A durable recovery will likely require a combination of sustained easing in global oil prices, a meaningful reversal in foreign portfolio outflows, and continued confidence in India's macro stability."

"As long as oil prices remain high, INR is expected to remain under pressure and RBI’s stance is likely to be to smooth out excessive weakness and volatility rather than to offset the depreciation pressure altogether."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)