The Reserve Bank of India (RBI) views the recent depreciation in the rupee as the result of speculative attacks rather than underlying macro fundamentals, according to a source familiar with its internal thinking.
In response, the RBI is intervening — selling dollars in both onshore and offshore markets — until the currency “settles at a stronger level.”
The source, speaking anonymously, noted that the RBI was particularly concerned when the rupee approached ₹89 per U.S. dollar in recent trading sessions. The central bank does not want the currency to breach its all-time low of ₹88.8050 per dollar and is stepping in to prevent that from happening.
Speaking at the IMF’s annual meetings in Washington, DC, RBI Governor Sanjay Malhotra characterized the recent movement as a “correction, in some sense,” noting that the rupee had long been “range bound.” He added that other emerging market currencies had depreciated in response to U.S. tariff pressures, increasing external pressure on the rupee.
Crucially, Malhotra reaffirmed RBI’s stance:
“The rupee is undergoing a ‘correction, in some sense’ … The RBI’s stated policies remain ‘not to target a price level or a price band’ and letting the markets determine the exchange rate.”
He characterized the RBI’s role more as a stabilizer than a rate-fixer.
Following media reports, the rupee rallied — moving from ₹88.35 to ₹88.09, and eventually closing at ₹88.07, up 0.8% from the prior close — marking its strongest gain in nearly four months. This reversal suggests that markets interpreted the intervention as credible.
Analysts speculate that by aggressively intervening, the RBI may be “crushing the speculative longs” — sending a strong signal to traders that aggressive bets against the rupee will be met with force.
According to the source, the RBI “will continue to intervene until it is satisfied that speculative positions have been unwound.”
The rupee has lingered near record lows for weeks, and the recent central bank action echoes a similar move in February of this year, when the RBI sold large amounts of dollars to counter downward pressure. The consistent pattern suggests the RBI is willing to deploy its foreign exchange reserves (among the world’s largest) to defend currency stability.
Traders point out that if the rupee were to cross ₹89 per dollar, it could penetrate ₹90 territory, which carries both psychological and technical significance. The RBI is cautious about allowing that, especially if the depreciation is driven by speculative flows rather than weak fundamentals.
Key pressures on the rupee include uncertainty from U.S. tariffs, capital outflows, and widening trade deficits. Nevertheless, the central bank views much of the recent slide as “overdone.”
Under Governor Malhotra, the RBI had earlier given the rupee more leeway, allowing it to move within broader bounds compared to the tight control exercised under his predecessor, Shaktikanta Das. But the recent interventions reflect that the RBI still retains the ability to act decisively when deemed necessary.
Malhotra also noted that India is largely a domestic-driven economy, and though 50% U.S. tariffs hurt in the short run, he doesn’t see them as a “matter of huge concern” for India’s long-term trajectory.
He expressed optimism that an early resolution of tariff disputes could enhance growth outcomes. He expects that if trade tensions ease, the rupee and broader economy may benefit.
Currently, the government expects economic growth above 6.5 % for the fiscal year. Inflation has recently dipped below the RBI’s lower target band (~2 %), and the current account deficit remains moderate — around 1 % of GDP, though recent data showed the trade gap widening.
As markets watch closely, the key questions are:
How far will the RBI intervene?
How long will it sustain these operations?
Will repeated interventions affect liquidity or other macro variables in the banking and financial system?
If speculative pressure abates, the rupee may retest stronger levels. But if pressure returns, the RBI’s resolve will be tested again.
At the IMF forum, Governor Sanjay Malhotra underscored a core principle: the RBI does not target a rupee price band or a fixed level. Yet behind the scenes, the central bank is actively intervening to stall speculative depreciation and maintain orderly movement, especially as the rupee nears dangerous thresholds. With macro fundamentals reasonably stable, the RBI’s job is to manage volatility rather than dictate a rate. The coming weeks will test how far and how effectively it can do so without distorting markets or draining resources.