Rupee Plunges Past 96 Against Dollar Amidst Fed Rate Hike and Global Headwinds

The Indian Rupee took a significant hit today, crossing the 96 mark against the US Dollar for the first time in over two months, settling at 95.94 after dipping as low as 96.10 in early trade. This sharp depreciation came right after the US Federal Reserve announced a 25-basis-point interest rate hike on Wednesday, its first since 2023, which immediately made the dollar stronger and more attractive to investors globally. The rupee initially opened weaker at 95.99, clearly showing the immediate impact of the Fed hawkish move on currency markets. This isn't just about the Fed; the Rupee has been under continuous pressure from several sides, facing its seventh straight session of decline. High global crude oil prices, currently hovering around $105 per barrel, are a major concern for India, a big oil importer, as they increase the country's import bill and demand for dollars. Adding to this, India's trade deficit has been widening, reaching $26.86 billion in August 2026 and $31.98 billion in July 2026, creating more demand for the greenback. However, the Reserve Bank of India (RBI) likely stepped in, using state-run banks to sell dollars in the foreign exchange market, which helped the Rupee recover some of its losses by the end of the day, signaling the central bank's discomfort with a sharp fall below 96. Looking ahead, market watchers are keeping a close eye on the US Federal Reserve, as it has hinted at more interest rate hikes this year to tackle inflation. Analysts from Axis Bank even suggest the Rupee could weaken further to 97 by the end of 2026 and potentially touch 100 by June 2027 if these global economic shifts continue. While India's substantial foreign exchange reserves, recorded at $785.7 billion in early September, give the RBI a strong cushion to intervene and manage extreme volatility, the rupee's journey will remain bumpy due to these strong global currents.