RBI Considers Rate Hike and NRI Deposit Scheme as Rupee Hits Fresh Record Low

Reserve Bank of India is reportedly evaluating several measures to stabilize the Indian rupee after the domestic currency slipped to a fresh record low of nearly ₹97 against the US dollar this week. The sharp depreciation has raised concerns among policymakers, investors, and businesses, especially as global financial markets remain volatile due to rising geopolitical tensions, high US interest rates, and continued capital outflows from emerging markets.

According to reports, RBI Governor Sanjay Malhotra and senior officials have been holding internal discussions to assess possible policy responses. Among the key options under consideration are an interest rate hike, special deposit schemes for non-resident Indians (NRIs), and even a sovereign dollar bond issuance, subject to government approval.

The rupee’s rapid decline has sparked fears of imported inflation, higher energy costs, and pressure on India’s current account balance. While Indian policymakers continue to maintain that the country’s macroeconomic fundamentals remain strong, the speed of the currency’s fall has prompted urgent discussions at the central bank level.

RBI Examines Emergency Measures to Stabilize Rupee

Interest Rate Hike Under Consideration

One of the most closely watched options is a possible increase in interest rates ahead of the RBI’s next monetary policy review scheduled for June 5.

A rate hike could help attract foreign investment into Indian bonds and financial assets by widening the interest rate differential between India and the United States. Analysts note that the yield gap between Indian and US government bonds has narrowed to a decade low, making Indian assets relatively less attractive for global investors.

Although the RBI generally follows scheduled policy cycles, the central bank has previously made unexpected “out-of-cycle” decisions during periods of market stress. A notable example occurred in May 2022, when the RBI surprised markets with an emergency rate increase to combat inflationary pressures.

RBI’s Immediate Focus on Currency Stability

Policymakers reportedly believe that India’s economic fundamentals remain resilient despite the currency weakness. India continues to maintain stable banking conditions, healthy domestic demand, and one of the world’s fastest-growing large economies.

However, officials are said to be increasingly concerned that the rupee’s depreciation is occurring faster than anticipated. The central bank’s primary objective now appears to be containing excessive volatility and restoring investor confidence.

NRI Deposit Scheme May Return

Strategy Similar to 2013 Taper Tantrum Response

The RBI is also considering reviving a special foreign currency deposit scheme for non-resident Indians (NRIs), similar to the measures implemented during the 2013 taper tantrum crisis.

Back then, India faced severe pressure on the rupee after the US Federal Reserve signaled a reduction in monetary stimulus. To attract foreign currency inflows, India introduced special FCNR (Foreign Currency Non-Resident) deposit schemes through domestic banks.

The latest proposal aims to encourage overseas Indians to deposit dollars into Indian banks, thereby boosting the country’s foreign exchange reserves and easing pressure on the rupee.

Potential Foreign Currency Inflows

According to estimates, the RBI believes the new NRI deposit scheme could attract as much as $50 billion in foreign inflows, significantly higher than the earlier estimate of around $30 billion.

If successful, such inflows could strengthen India’s foreign exchange position and provide temporary support to the rupee without aggressively depleting reserves.

Sovereign Dollar Bond Also Being Discussed

Government Approval Would Be Necessary

Another option reportedly under discussion is the issuance of a sovereign dollar-denominated bond. Such bonds allow governments to raise funds directly from international investors in foreign currency.

While India has traditionally avoided sovereign foreign currency borrowing due to concerns over external debt risks, the current currency pressures may prompt policymakers to revisit the idea.

Experts say a sovereign dollar bond could immediately improve foreign exchange liquidity, although it may also expose the country to exchange rate risks if the rupee weakens further.

Global Factors Behind Rupee Weakness

Strong Dollar and Capital Outflows Hurt Emerging Markets

The rupee’s decline is not occurring in isolation. Several emerging market currencies have faced pressure due to persistent strength in the US dollar and elevated global interest rates.

Foreign institutional investors have been pulling money out of Indian markets throughout 2026. Reports indicate that foreign fund outflows from Indian equities this year have already surpassed last year’s record of $19 billion.

Rising Oil Prices Add Pressure

India, being one of the world’s largest crude oil importers, remains vulnerable to rising global energy prices. A weaker rupee makes oil imports more expensive, potentially increasing inflationary pressures within the economy.

Higher import bills can also widen India’s current account deficit, placing additional strain on the currency.

How a Rate Hike Could Impact the Economy

Positive Impact on Currency and Investments

An increase in interest rates could help stabilize the rupee by making Indian financial assets more attractive to global investors.

Possible Economic Risks

However, higher interest rates may also increase borrowing costs for businesses and consumers. This could potentially slow credit growth, housing demand, and overall economic activity.

Economists believe the RBI faces a delicate balancing act between supporting economic growth and defending the rupee.

Monetary Policy Committee Meeting in Focus

RBI to Review Situation in June

The RBI’s six-member Monetary Policy Committee (MPC) is scheduled to meet between June 3 and June 5 to assess inflation, liquidity conditions, economic growth, and currency stability.

Financial markets are expected to closely monitor any signals regarding future interest rate action or additional liquidity measures.

Conclusion

The Reserve Bank of India’s consideration of emergency measures, including a possible interest rate hike and NRI deposit schemes, highlights the seriousness of the current pressure on the rupee. With the currency touching nearly ₹97 against the US dollar, policymakers are increasingly focused on restoring market confidence and stabilizing capital flows.

While India’s macroeconomic fundamentals remain relatively strong compared to many emerging economies, external challenges such as rising US interest rates, foreign fund outflows, and global market uncertainty continue to weigh heavily on the rupee.

The RBI now faces the complex challenge of balancing economic growth, inflation control, and currency stability. The upcoming monetary policy meeting in June is expected to play a crucial role in shaping investor sentiment and determining the central bank’s next course of action.