Opinion Rupee is under pressure, RBI needs to let it be

While the central bank has repeatedly maintained that its interventions in the forex market are designed to smoothen excessive volatility, it should refrain from defending any particular level

Rupee under pressure sharpens RBI challenge

Last Friday, the RBI imposed a cap on the foreign exchange positions of banks in order to limit the pressure on the rupee.

By: Editorial

3 min readApr 2, 2026 06:11 AM IST First published on: Apr 2, 2026 at 06:02 AM IST

On Monday, the rupee briefly breached the 95 mark against the dollar. While the currency recovered — on Wednesday, it hovered around 93.5 — it has weakened considerably in the recent past. Over the course of 2025-26, the rupee has fallen by around 9.6 per cent against the dollar. In March alone, it fell by over 4 per cent. Since the beginning of the Iran war, other Asian economies such as Thailand and South Korea have also seen a decline in their currencies.

The pressure on the rupee is coming from both the current and capital account. The country’s dependence on energy imports implies that higher prices — India’s crude basket averaged $113.5 per barrel in March — exert pressure on the external front. A $10 increase in crude prices could push up the current account deficit by 30-40 basis points, as per CareEdge ratings. Merchandise exports to West Asia — for instance, in 2024-25, India’s exports to the UAE stood at $36.6 billion — will also be hit if the conflict continues. On the other hand, foreign portfolio investors have taken out a staggering $13.6 billion in March alone from the country. FDI flows have also slumped — net FDI stood at $1.6 billion during April-January 2025-26.

Last Friday, the RBI imposed a cap on the foreign exchange positions of banks in order to limit the pressure on the rupee. The central bank has also been intervening in the markets. The RBI’s foreign currency assets have fallen from $573 billion on February 27 to $557 billion on March 20. Its outstanding net short dollar position has also risen significantly over the past two months from $67 billion in January, as per reports. These provide some indication of the extent of its interventions. The RBI governor’s statement in the upcoming monetary policy meeting will probably provide some clues on the central bank’s thinking, and on possible next steps if the rupee’s weakness persists. In an interview to this paper, a former deputy governor of the RBI, Michael Patra, has proposed using the US Federal Reserve’s FIMA (Foreign and International Monetary Authorities) repo facility, which could have a “stabilising influence” on the market. In the past, the RBI has used monetary policy to defend the exchange rate. While the central bank has repeatedly maintained that its interventions in the forex market are designed to smoothen excessive volatility, it should refrain from defending any particular level. The exchange rate should work as a shock absorber.