Rupee Stages Dramatic Comeback on RBI Intervention
The Indian rupee staged a remarkable recovery, closing at 90.38 against the US dollar on Wednesday, marking a significant gain of 65 paise. This strong rebound, driven by aggressive intervention from the Reserve Bank of India (RBI), reversed a portion of the currency's recent sharp depreciation. The rupee surged as much as 1% during the day, reaching a high of 90.08, its most substantial single-session advance in two months.
This decisive action by the central bank comes amid growing speculation about the timing and scale of its response to the rupee's sustained slide in recent weeks, which had seen it repeatedly touch new historical lows. Market participants noted that the RBI's move appeared strategically timed to counter prevailing one-sided expectations of continued rupee weakness, a tactic often employed by the central bank to maximize the impact of its market operations.
The Core Issue
Recent weeks had witnessed a significant slide in the Indian rupee's value against the US dollar. This depreciation fueled widespread speculation regarding the Reserve Bank of India's next steps. Growing demand for dollars in the merchant segment, reportedly reaching a combined excess demand of $145 billion according to an SBI report, added pressure on the currency.
RBI's Intervention Strategy
Dealers indicated that the dollar sales by the RBI were aimed at dispelling expectations of a continued one-sided rupee weakness. The central bank is known for using surprise tactics in its market interventions to enhance their effectiveness. Reports suggest a prior $5 billion dollar-buy swap conducted by the RBI may have set the stage for Wednesday's direct spot market intervention.
Financial Implications and Trade Balance
A depreciating currency typically impacts a nation's trade balance. However, a recent report by SBI suggested that the impact of a depreciating currency on India's current trade balance might be limited. While goods exports showed a notable 19.4% growth in November 2025, the benefits of increased export volumes are reportedly offset by the rising costs associated with imports.
Forex Reserves Under Pressure
The Reserve Bank of India's significant interventions to curb currency volatility have had a tangible effect on its foreign exchange reserves. The SBI report estimated that the RBI deployed approximately $30 billion between June and October 2025. This substantial deployment contributed to a decline in forex reserves, which fell from a peak of $703 billion in June to $687.2 billion by early December.
Future Outlook: SBI Report Scenarios
Looking ahead, the SBI report presented two potential scenarios for the Indian rupee. One projection indicates a continued depreciation, potentially moving towards 92.5 per dollar by mid-2026. Alternatively, a recovery scenario anticipates the rupee appreciating by about 6.5%, averaging around 87 per dollar in the latter half of the next fiscal year.
Impact
This intervention aims to stabilize the rupee, which can help control imported inflation and provide greater certainty for businesses involved in international trade. A stable or appreciating rupee can boost consumer confidence and make imports cheaper. However, excessive intervention could deplete forex reserves. The successful stabilization of the rupee is crucial for managing economic stability and investor sentiment in India.
Impact Rating: 8/10
Difficult Terms Explained
- Dollar-buy swap: An operation where the central bank buys dollars from the market and simultaneously agrees to sell them back at a future date. This helps manage liquidity and rupee stability.
- Spot market intervention: Direct buying or selling of currency in the foreign exchange market for immediate delivery. It aims to influence exchange rates in the short term.
- Current trade balance: The difference between a country's total value of exported goods and services and its total value of imported goods and services over a specific period.
- Empirical analysis: Research based on observed and measured phenomena, involving data collection and statistical analysis to draw conclusions.
- Merchant segment: Refers to the part of the foreign exchange market that deals with non-financial corporations and businesses for their commercial transactions, such as trade and hedging.
- Forex reserves: A country's holdings of foreign currencies, gold, and other foreign currency assets, managed by the central bank to support its currency and international payment obligations.
- Fiscal year: A period of 12 months used for accounting purposes. In India, it typically runs from April 1st to March 31st.
- Depreciation: A decrease in the value of a currency relative to another currency. It makes imports more expensive and exports cheaper.
- Appreciation: An increase in the value of a currency relative to another currency. It makes imports cheaper and exports more expensive.