RBI Expected to Maintain Strong Rupee Defense Amid Depreciation Worries

The Reserve Bank of India (RBI) is likely to persist in its efforts to support the rupee, despite speculation that Governor Sanjay Malhotra might adopt a different stance, according to a report by Mint.

A senior government official informed Mint that the central bank's strategic interventions are focused on mitigating the rupee’s decline and maintaining stability in the foreign exchange market.

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Over the past six months, the USD/INR depreciated by approximately 3.5%, reaching 86.88 on March 7, as per Bloomberg data. In contrast, the Chinese yuan and Japanese yen experienced relatively milder depreciations of 1.7% and 0.7%, respectively. Nevertheless, the government remains optimistic about the rupee’s recovery to its December levels, supported by India's substantial foreign exchange reserves.

Although earlier projections suggested that Malhotra might permit the rupee to weaken to enhance competitiveness, the RBI has maintained its approach of curbing excessive fluctuations in the currency market, the report highlighted.

India's Forex Reserves and External Factors

India’s foreign exchange reserves declined by $1.78 billion to $638.698 billion in the week ending February 28, according to RBI data. In the preceding reporting week, reserves had risen by $4.758 billion to $640.479 billion.

During the same period, foreign currency assets—a key component of the reserves—dropped by $493 million to $543.35 billion, according to a PTI report citing RBI data.

While India’s forex reserves have doubled over the past decade, experts caution that they are largely built on volatile capital inflows rather than sustained export surpluses. Former RBI Deputy Governor BP Kanungo previously described these reserves as "borrowed reserves," the report noted.

Foreign portfolio investors (FPIs) have been net sellers in the Indian market, withdrawing ₹1.37 lakh crore in 2025, according to depository data. In the first week of March alone, they sold stocks worth ₹24,753 crore amid rising global trade tensions and weaker corporate earnings, a PTI report stated.

Impact of Global Markets and Policy Measures

Despite the RBI's interventions, analysts believe external factors, such as a stronger dollar, could continue exerting downward pressure on the rupee. The Federal Reserve’s monetary policy stance and interest rate decisions play a crucial role in influencing global currency movements. A higher interest rate in the U.S. tends to strengthen the dollar, making emerging market currencies, including the rupee, more vulnerable to depreciation.

Moreover, geopolitical uncertainties, including ongoing conflicts and trade tensions between major economies, have heightened volatility in financial markets. Investors tend to shift towards safer assets like the U.S. dollar during times of global instability, further weakening the rupee.

In response, the RBI has been actively managing liquidity and intervening in both spot and forward currency markets. These measures aim to prevent sharp fluctuations that could disrupt economic stability and investor confidence. Market participants suggest that the central bank’s approach signals its commitment to keeping the rupee within a controlled range rather than allowing excessive depreciation.

Recent Trends and Future Outlook

A Reuters report noted that the rupee recorded its strongest weekly gain in more than two years, as a sharp decline in the dollar boosted emerging market currencies. The recent rally suggests that a mix of central bank actions and external developments, including changes in U.S. trade policies, have provided some relief.

Looking ahead, analysts believe that India’s economic fundamentals remain strong, with steady GDP growth, robust foreign direct investment inflows, and a relatively healthy fiscal position. While short-term fluctuations in the rupee’s value are expected, the government and RBI remain confident in the currency’s ability to stabilize over time.

Ultimately, the RBI's strategy will likely focus on balancing growth and stability, ensuring that the rupee’s movement remains aligned with broader economic objectives.