The Indian rupee fell to an all-time low on Thursday, pressured by stubbornly high oil prices and persistent portfolio outflows that have strained the current and capital balances of Asia's third-largest economy.
The rupee fell 0.2% to 95.9575 per U.S. dollar, eclipsing its previous record low of 95.7950 hit on Wednesday. It closed at 95.7625, down marginally from its previous close.
The currency trimmed losses after Bloomberg News reported that India is considering a reduction in the taxes paid by foreign investors on the nation's bonds.
Policymakers have been studying ways to mobilise dollar inflows to bolster foreign exchange buffers and cushion rising pressure on the rupee, Reuters reported last week.
The months-long Iran war that has pushed up crude and gas prices sharply amid supply disruptions threatens to slow growth and lift inflation in India, which imports about 90% of its oil needs and about 50% of its gas requirements.
The country is facing a third consecutive year of a balance of payments deficit, prompting economists and traders to bake in expectations of persistent rupee weakness even as central bank interventions curb excessive volatility.
Analysts at Nomura expect policymakers to use regulatory measures to manage the deficit.
The deficit reflects "a more volatile global environment, but it requires a deeper rethink on how India should manage the external sector in the coming years," they said in a note.
Prime Minister Narendra Modi earlier urged citizens to conserve foreign exchange reserves, while the federal government has hiked tariffs on precious metal imports.
The central bank has sold down FX reserves to cushion the pressure and tapped rare regulatory measures to support the currency.
Meanwhile, government data showed wholesale inflation quickened to a three-and-a-half-year high in April, one of the first clues of the impact the energy shock has had on India's economy.
India is yet to raise retail fuel prices and analysts at Barclays reckon that a "INR5/litre hike for both petrol and diesel is imminent in May, as crude oil prices remain elevated."
Brent crude oil futures were last at $105.95, up more than 45% from before the Iran war began.
