The Indian rupee reached a record low on Wednesday, falling amidst stalled U.S.-Iran peace negotiations that have kept oil prices high, contributing to increased global bond yields and negatively impacting equities as concerns over potential further central bank rate hikes mount.
The rupee dropped to 96.96 per dollar, surpassing its previous record low of 96.6150 recorded in the prior session, ultimately closing the day at 96.82. Since the onset of the Iran conflict in late February, the currency has depreciated by over 6 percent. In global markets, bond sell-offs continued as investors grew more convinced that the Federal Reserve may need to implement additional interest rate increases in 2026.
Although oil prices retreated slightly, they remained close to $110 a barrel after U.S. President Donald Trump indicated that a strike on Iran could still be possible, following a recent postponement to allow for further discussions with Tehran.
The combination of elevated energy prices and weak capital inflows, exacerbated by rising bond yields, has sparked concerns over a potentially significant balance of payments deficit for India in the current fiscal year.
“There is no convincing resolution to the conflict currently in sight. This external energy shock has disrupted the macroeconomic landscape, placing continued pressure on the rupee,” analysts at DBS noted in a report. They have adjusted their forecast for the rupee to a weaker range of 95-100 for the remainder of 2026, a downgrade from their previous estimate of 90-95.
During the trading day, dollar sales by state-run banks, likely on behalf of the Reserve Bank of India, helped mitigate the rupee’s decline, according to traders. “There is consistent buying of dollars from clients, while significant dollar supply is primarily coming from the RBI, which keeps the Indian rupee dependent on these interventions,” a trader at a private bank remarked.
The impacts of the Iran conflict are also evident in neighboring regions, as Indonesia’s central bank raised rates by a larger-than-expected 50 basis points to bolster the rupiah, which, akin to the rupee, has experienced a series of record lows in recent days.
Published on May 20, 2026.
