India’s central bank is prepared to accommodate a weaker rupee amid challenges in the nation’s external sector, including an expanding trade deficit and a decline in dollar inflows. This stance was reported by three sources familiar with the Reserve Bank of India’s (RBI) perspectives.
After previously supporting the rupee through significant dollar sales, the RBI has permitted the currency to drop 1.3% in the past week, reaching a record low of 90.42 against the dollar. The rupee is currently down 5.5% year-to-date, marking it as Asia’s least performing currency.
By signaling its tolerance for a depreciating rupee, the central bank has indicated that it will primarily intervene to manage extreme volatility or any indications of speculative activity rather than to defend a specific value for the rupee, as stated by the sources.
“It doesn’t make sense to spend reserves when fundamentally everything is against the currency,” one source noted, speaking on the condition of anonymity due to restrictions on media communications.
The RBI did not respond when contacted for comment. Another source highlighted that adjustments to the rupee’s value would occur in accordance with fundamental economic conditions and actual dollar demand.
India has experienced significant foreign investor outflows, with $17 billion pulled from stock markets this year. Meanwhile, foreign direct investment, trade, and offshore fundraising activities have also seen a slowdown.
While the rupee’s fall below the key psychological threshold of 90 per dollar has drawn attention and may attract speculation, a third source remarked that the central bank could intervene if necessary to manage such activities.
