The Indian Rupee edged closer to the 88-mark against the US dollar on February 10, intensifying selling pressure in equity markets and bringing attention to the Reserve Bank of India (RBI) Governor’s stance of not targeting a specific exchange rate level or band.
The domestic currency closed at 87.48 against the US dollar, slightly weaker than its previous session’s closing of 87.43. Earlier in the day, the rupee fell to a new record low of 87.9563 against the greenback, following the announcement of new tariff plans by U.S. President Donald. It opened at 87.9175 against the dollar, reflecting continued weakness.
During a media briefing after the Monetary Policy Committee (MPC) meeting last week, RBI Governor Sanjay Malhotra reaffirmed the central bank’s position on the rupee, stating, “Our stated objective is to maintain orderliness and stability, without compromising market efficiency.”
Despite this, the rupee’s sharp decline of over 3% since December 2024 has led to speculation in the currency market that the central bank may be easing its grip on the currency, a contrast to the approach of Malhotra’s predecessor. The Indian rupee has been facing sustained selling pressure and hitting fresh lows, largely due to the strengthening of the US dollar.
“…Our interventions in the forex market focus on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band. The exchange rate of the Indian Rupee is determined by market forces,” Malhotra added, reinforcing the RBI’s hands-off approach in directly influencing currency levels.
The RBI Governor also pointed out that while the Indian economy remains robust and resilient, it has not been completely immune to global economic pressures. “At the Reserve Bank, we have been employing all tools at our disposal to face the multi-pronged challenges,” he said, indicating that the central bank is actively managing various risks.
Despite the rupee’s depreciation, the RBI’s presence in the foreign exchange market has helped maintain relative stability. Data indicates that between April and November 2024, the central bank sold gross dollars worth $195.568 billion, keeping the rupee’s exchange rate within a range of 84-86 per US dollar during this period. This intervention has made the Indian rupee one of the least volatile currencies among its Asian counterparts.
According to Bloomberg data, the rupee has weakened by 3.2% since Malhotra took over as RBI Governor. The decline has been driven by multiple factors, including a widening trade deficit, rising crude oil prices, and a surge in the US dollar index after the Federal Reserve signaled fewer interest rate cuts in 2025. Additionally, India’s slow economic growth in the second quarter of FY25 and foreign investor outflows from equity markets have contributed to the rupee’s downward trajectory.
The depreciation of the rupee has been relatively modest compared to other global currencies. In the first nine months of FY25 (until January 6, 2025), the rupee weakened by 2.9%, performing better than several other major currencies. The Canadian Dollar, South Korean Won, and Brazilian Real saw sharper declines of 5.4%, 8.2%, and 17.4%, respectively, over the same period, according to the Economic Survey 2025.
The survey attributed the rupee’s depreciation in 2024 largely to the broad-based strengthening of the US dollar, which gained momentum amid geopolitical tensions in the Middle East and uncertainty surrounding the US presidential election. These factors have led to a global shift in currency valuations, with emerging market currencies, including the rupee, facing increased pressure.
Between October 2024 and January 2025, the Indian rupee was the least volatile among Asian and global currencies against the US dollar. Data further indicated that the rupee ranked as the fourth-least volatile currency in Asia and the second-least volatile against major global currencies, including the Japanese Yen, British Pound, Euro, and Chinese Yuan, during this period.
While concerns over the rupee’s depreciation persist, the RBI’s strategy remains focused on managing volatility rather than setting a rigid exchange rate target. The central bank’s interventions aim to prevent excessive fluctuations while allowing market forces to play a dominant role in determining the currency’s value.