The Indian rupee made its lowest level at 94.8550 on Friday, March 27, 2026 mainly on account of the following reasons:

1. Oil prices have risen from $60 to $120 per barrel (the highest in four years) since the start of the Iran war with the Indian basket rising to as high as $157 per barrel (cam down to $116 on Friday). Oil companies were constant buyers in the market to make oil available to Indians without any interruptions.

2. FPIs (foreign portfolio investors) were sellers in equity and debt and have sold more than $13 billion during the month of March which is keeping the bids on a consistent basis on the dollar. The GOI 10-year yield has risen to 6.94 per cent, which is the highest in the last one year.  

4. Exports to Gulf countries have fallen while Service exports though have risen during the financial year look to be in trouble due to AI dominating over these exports and we could see a serious downturn in the numbers if our IT companies do not put money into research in AI. We saw the rise in other stock markets like Korea, japan, China, Europe and US just due to rise in AI stocks until they feel due to the Iran war.

5. The war has caused a lot of damage to overall world economy with the trades in doldrums as ships and tankers are unable to pass due to blockages in Strait of Hormuz from where 20 per cent of the World’s trade passes through. With Houthi’s attacking Red Sea, the route has also come into cloud. India is among the worst affected countries amid disrupted supply chains, as 50 per cent of its imports of oil and related products transit via these areas. 

6. Apart from FPI, India’s foreign direct investments (FDI) has also fallen into a negative zone after remaining positive for 15 years, which is causing a possible increase in CAD and a negative BOP (balance of apyment). NRI remittances are also down due to the Gulf war along with the 1-per cent tax imposed by the Donald Trump Administration on all such remittances done by Non-Residents in the US.

 7. Banks have been creating arbitrage positons by selling in NDF and buying in OTC/Futures; thus making them long $ in the local markets.

8. Rupee has fallen by 11 per cent in the current financial year of which about ₹4 (4.22 per cent) came only in the month of March after the war in Iran started. 

That said, the RBI, on Friday, instructed banks to reduce their overnight positions in the OTC/Futures to $100 million; thus closing the arbitrage route for the banks. Banks had about $40-50 billion of arbitrage positions open, which had to be reduced approximately to about $5 billion (presumed amount considering $100 million for 50 banks). 

Banks who do daily Mark-to-Market (MTM) were skeptical of huge losses in onshore market (though the same would be offset by the buying in the offshore market) which could amount to ₹4,000 crore. That said, while rupee opened higher at 93.50 with the RBI squaring off its shorts positions, oil companies were et buyers in the market, taking rupee lower towards 94.30 at the time of writing this article.

Rupee will continue to remain sold with higher oil prices, falling equities, and hardening of bond yields till the end of the war. 

If one watches the FX reserves positioning in the month of March 2026, the forex reserves have fallen by $30 billion of which $16 billion was a fall in FCA. This means the RBI sold that much amount in the markets to keep a tab on the rupee. So the trend of rupee fall will continue as the Government may take steps to get FDI and FPI inflows to cover our external positions (because of huge oil and Gold buying required in imports). 

Notably, in the last 10 years, FPIs inflows were in the positive for only two years. So to attract capital, certain important steps need to be taken by the Government so that FPIs do not exit from the equity and debt market. 

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Disclaimer: Anil Kumar Bhansali is head of treasury at Finrex Treasury Advisors. Views expressed are personal.