Whalesbook
RBI's Aggressive Action to Support the Rupee
The Reserve Bank of India (RBI) took significant action on Thursday, reportedly selling $2 billion to $5 billion to counter the rupee's steep fall. This intervention marks a notable increase in the central bank's efforts, which had previously involved average daily sales of about $1 billion.
Intervention Strategy and Market Effect
The RBI's approach involved selling dollars to slow the rupee's decline and discourage currency speculators. The intervention began before the market opened on Thursday with a $500 million sale that had a significant impact due to low trading liquidity. The central bank continued selling dollars on Friday, helping to push the rupee back above 96 against the US dollar.
Key Pressures on the Rupee
The rupee's weakness stems from several factors. A major contributor is persistently high crude oil prices, worsened by geopolitical tensions in the Middle East. As a major oil importer, India needs more dollars when oil prices rise, directly affecting refiners and the currency. The rupee had depreciated about 2.5% in the two weeks before Thursday's intervention. Foreign portfolio outflows also continue to put downward pressure on the currency.
Further Policy Options
In addition to direct market intervention, Indian officials are reportedly considering other measures to support the rupee. Commerce Minister Piyush Goyal indicated that further steps are being assessed. Some analysts suggest the RBI might consider raising interest rates to strengthen the rupee. DBS Bank forecasts the rupee to trade between 95 and 100 for the rest of 2026, suggesting ongoing volatility.