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Informist, Wednesday, Oct. 15, 2025

 

By Pratiksha

 

NEW DELHI – The rupee has displayed great stability against the dollar in the last few weeks, thanks to the Reserve Bank of India's active intervention. However, this move has left currency market players puzzled about the outlook for the rupee, as they did not expect such a strong defence from the central bank. In fact, the central bank's aggressive intervention pushed the Indian unit to a one-month high Wednesday, posting an intraday gain of 89 paise, the highest since November 2022.  

 

Prior to this the rupee was confined to an average daily range of merely 13 paise in the last three weeks, against 25 paise in the three weeks before that. The RBI has been relentlessly selling dollars in the spot market at 88.80 a dollar or thereabouts, according to dealers. In the last 15 trading sessions, the Indian unit has come within touching distance of 88.80 several times, but could not manage to breach it, barring on Sept. 30 when it had hit a record low of 88.8025. 

 

The central bank's strong intervention in the currency market caught traders off guard as most had expected the apex bank will allow the rupee to depreciate amid US tariff uncertainties, as has been the case under the leadership of RBI Governor Sanjay Malhotra. Ever since Malhotra took charge as the RBI governor in December, the rupee has seen excessive swings on both sides, instilling a sense in the market that the RBI will be hands-off in its approach to intervention.

 

However, the recent shift in intervention strategy suggests the central bank has reverted to the same approach it had adopted under Malhotra's predecessor Shaktikanta Das' term. In the last one year under Das' leadership, volatility in the foreign exchange market dropped to historical lows, with the RBI curbing even minor movements. So much so that the International Monetary Fund in December 2023 reclassified India's de facto exchange rate regime as a 'stabilised' arrangement from a 'floating' one. 

 

Apart from the interventions in the domestic spot market, the RBI has displayed its unflinching resolve to support the local currency through the offshore non-deliverable forwards market as well, an intervention route used actively under Das, market participants said.

 

While Malhotra earlier this month said that the RBI is keeping a close watch on the movement of the rupee and will take appropriate steps, as warranted, market participants can't help but wonder about the plausible explanations for the RBI's recent operations in the currency market. 

 

Most market participants are of the view that the RBI may be intolerant towards depreciation of the rupee owing to expectations of a breakthrough in the trade deal negotiations between India and the US in the near term. The 50% US tariff on India is the primary reason behind the current depreciation bias on the rupee, they said. 

 

"With 3.3?cline already delivered in the rupee since tariff tensions began, it may not be prudent to let the rupee keep reacting to financial market sentiment related to risk events," Dhiraj Nim, FX strategist at ANZ Bank India, said. "Plus, now that space for further easing has opened, it will serve monetary policy better to have a low exchange rate volatility." 

 

The US slapped a 25% reciprocal tariff on Indian goods, with an additional 25% punitive tariff for New Delhi's continued economic relationship with Moscow, including purchase of Russian crude oil. After multiple rounds of negotiations, the Indian team is yet again leaving for the US for the next round of trade talks this week. Both New Delhi and Washington are hopeful of closing the first tranche of the deal by the end of the fall season. If a trade deal between India and US is clinched and is in favour of India, most market participants expect the rupee to appreciate towards 87.50 a dollar.

 

"I think most of negativity from the tariff has been priced in. The market is just on wait and watch mode before the eventual outcome of the trade deal," Sakshi Gupta, principal economist at HDFC Bank, said. "The best approach is to maintain calm during times of extreme panic. I don't think RBI is targeting any particular level. It is just using its intervention as a signalling mechanism."

 

Some market participants also pointed out that the central bank may not be comfortable with a quick depreciation in the rupee and may only let it fall gradually. The rupee had fallen past the psychologically-crucial 88-per-dollar mark for the first time only on Aug. 29. So far in 2025, the Indian currency has depreciated 3.2% against the dollar. In contrast, the rupee had declined 2.9% in 2024 and just 0.6% in 2023. 

 

"RBI must be worried about 90 (a dollar) happening soon, which is why they are protecting the rupee so much," a treasury head at a foreign bank said. "RBI earlier defended 88.50 and now they are defending 89...it's all gradual," the treasurer said. "Although, we had expected RBI will allow rupee to depreciate much more to support exports with the tariff issue still being there." 

 

Some dealers said the RBI may have ramped up its defence of the rupee in anticipation of robust foreign inflows into the upcoming initial public offerings of multiple domestic companies. In the last two weeks, six companies, including big-ticket ones such as Tata Capital Ltd. and LG Electronics India Ltd. opened for public subscription.

 

Mint Street's unexpected pivot in its intervention strategy has led to uncertainty among market participants about the future outlook of the Indian unit. However, some expect the RBI to eventually let the rupee succumb to the downward pressure, albeit slowly. 

 

"It will be difficult for RBI to hold this line unless they do something out of the box and sell dollars aggressively in the NDF market," Jamal Mecklai, chief executive officer at Mecklai Financial Services Ltd, said. "At the best of times it is impossible to forecast the market. In the current geopolitical volatility, it would be a foolishness."  End

 

US$1 = INR 88.31

 

Edited by Vandana Hingorani

 

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