The RBI has adopted a multi-layered strategy to support the rupee, combining direct intervention in spot and forward markets, regulatory action, liquidity measures and steps to curb import-related dollar demand.
“The rupee has appreciated by 1.8% against the dollar in the past five days since the recent measures took effect, paring year-to-date depreciation to 5.5%. USDINR has eased from near 96.80 towards 95.00, even with oil prices around $105/bbl and elevated global yields,” said Radhika Rao, Senior Economist and Executive Director at DBS Bank.
RBI intervention and tighter trading conditions
The central bank’s approach includes dollar sales to moderate volatility and regulatory measures aimed at discouraging speculative positions. These steps are intended to ensure that foreign exchange markets primarily serve genuine hedging requirements rather than speculative bets.
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“Unlike in 2013, the 2026 strategy has prioritised targeted FX and regulatory measures,” Rao said, referring to RBI Governor Malhotra’s comments on the objective of the recent steps.
Market participants expect foreign exchange volumes and speculative interest to remain subdued in some segments, potentially helping stabilise the currency. However, intervention alone cannot permanently reverse depreciation pressures if underlying demand for dollars remains strong.
How does 2026 compare with the 2013 crisis?
Rao said the current situation differs from the 2013 episode, when the rupee came under intense pressure amid a wide current account deficit, high inflation, limited foreign exchange reserves and large fiscal deficits.
“The 2013 response was ‘crisis management’,” she said, adding that the current challenge stems more from a terms-of-trade shock and a firm dollar. India’s current account position is also visibly better than it was in 2022-23, she noted.
Rao said strong inflows through swap facilities, including foreign currency non-resident (FCNR) deposits, had helped push reserves to a record high, giving policymakers a buffer to navigate future shocks. A portion of reserves could also be earmarked against forward liabilities arising from maturing FCNR deposits, helping address concerns about future dollar demand.
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Can the rupee sustain its recovery?
The decline in reserves remains an important consideration. India’s forex reserves fell by $8.58 billion in the latest reporting week alone. However, the fall in headline reserves cannot automatically be attributed entirely to RBI intervention, as valuation changes and other movements in reserve assets can also play a role.
Rao said markets were anticipating measures such as relief on long-term capital gains tax on equities to attract longer-duration inflows and steps to encourage exporters to repatriate dollars. Rate-sensitive flows could also improve as investors seek attractive interest-rate differentials in the region.
For now, the rupee’s recovery suggests that the RBI’s measures may be helping contain immediate pressure. Whether the gains last will depend on global oil prices, dollar strength, foreign investment flows and the extent to which demand for dollars eases. The challenge for the central bank is to maintain orderly currency-market conditions without relying indefinitely on reserve drawdowns.