The Reserve Bank of India (RBI) has stepped up its intervention in the foreign exchange market as the Indian Rupee faces increased volatility amid global uncertainties. The central bank’s actions have helped the Rupee remain one of the least volatile major currencies in recent months. According to Bloomberg data, the Indian rupee has depreciated by 3.60 percent since September, which is relatively lower than other major currencies such as the Japanese yen, Canadian dollar, British pound, Australian dollar, and Euro.
The Indian currency also outperformed the South Korean Won and the New Zealand Dollar. The Rupee’s volatility increased after India reported sluggish growth in the second quarter of the current financial year, a widening trade deficit, rising crude prices, and a surge in the dollar index following hints from the US Federal Reserve about fewer rate cuts in 2025. The US president’s imposition of tariffs on Canada and Mexico also impacted the Indian Rupee.
RBI combats rupee’s volatility surge
Since February 10, when the Indian Rupee touched a record low of 88 against the US dollar, the RBI has intensified its intervention by selling dollars in both the spot and forward markets. Anindya Banerjee, Head of Currency & Commodity at Kotak Securities, stated, “Over the past two trading sessions, the RBI has actively intervened in the forex market, selling dollars to contain the Rupee’s depreciation.
This intervention has led to a sharp recovery in the Rupee, with USD/INR retreating from nearly 88 to around 86.65 in the spot market.”
Data suggests that the RBI’s forex reserves declined sharply by over $75 billion since September 27, while the Indian Rupee depreciated from 83.70 to 87.96 against the US dollar on February 10. Between April and November 2024, the central bank sold gross dollars worth $195.568 billion, with the Rupee remaining in the range of 84-86 against the dollar. During a media briefing after last week’s Monetary Policy Committee (MPC) meeting, Governor Sanjay Malhotra reiterated the RBI’s stance on the Rupee, stating, “Our stated objective is to maintain orderliness and stability, without compromising market efficiency.” However, the sharp slide of over 3 percent in the Rupee since December 2024 has raised concerns within the currency market that the central bank might ease its hold on the Rupee, unlike the previous governor’s approach.
Governor Malhotra emphasized that the RBI’s interventions in the forex market focus on smoothing excessive and disruptive volatility rather than targeting any specific exchange rate level or band, adding that market forces determine the exchange rate of the Indian Rupee.