The Indian rupee is teetering dangerously close to its record lowest value, and the battle to keep it stable is far from over. But here's where it gets controversial: the Reserve Bank of India (RBI) is actively stepping in to prevent the rupee from sliding further, yet the pressures driving it down show no signs of easing soon.
On Thursday, the rupee ended the day almost unchanged at 88.7825 against the U.S. dollar, just a hair’s breadth away from the historic low of 88.80 it hit only last week. This near-record weakness has traders and economists paying close attention, as it signals underlying vulnerabilities in the currency’s strength.
Traders explain that persistent selling of dollars by government-backed banks—likely acting on the RBI's behalf—has been the main factor supporting the rupee in recent trading sessions. One foreign bank trader noted, "The RBI is fiercely guarding the 88.80 level, and until that pressure drops, we should expect the rupee to hover within this tight range."
What’s driving the rupee’s weakness in the first place? One key factor is growing concern over the economic fallout from stringent U.S. trade tariffs and more restrictive immigration policies. These uncertainties have led foreign investors to pull nearly $600 million out of Indian stocks just in October, contributing to a staggering net outflow of over $18 billion for the year so far. And this mass exit is hitting the currency hard.
On the flip side, some optimism comes from a major initial public offering (IPO) in India that is attracting significant investment inflows. The $1.3 billion IPO by LG Electronics India is drawing exceptional interest, with qualified institutional buyers oversubscribing by more than 95 times as of late Thursday afternoon. This surge of capital has helped push up the dollar-rupee overnight swap rate, indicating increased demand for rupees related to the IPO, with at least two large foreign banks reportedly engaging in sell-buy swaps.
Meanwhile, global currency dynamics are also playing a role. The U.S. dollar index climbed to a two-month peak, sitting at 98.9, buoyed by a weaker euro due to political turmoil in France and a struggling Japanese yen amidst a leadership change in Japan’s ruling party. Analysts from MUFG point out that "uncertainty in France combined with expectations of slower interest rate increases from the Bank of Japan are bolstering the dollar's strength."
So, what does this all mean moving forward? The RBI’s determined intervention suggests it will continue defending the rupee aggressively at these low levels. However, the fundamental economic and geopolitical forces—trade tensions, capital outflows, political instability abroad—may keep the rupee under pressure for the foreseeable future.
And this is the part most people miss: Is the RBI’s current approach sustainable, or could it be masking deeper issues in India’s economic outlook? Could prolonged defense of the rupee at near-record lows create challenges down the line, such as increased pressure on foreign reserves or inflation?
What’s your take? Do you believe the RBI can successfully maintain this delicate balance, or is the rupee’s slide inevitable despite these interventions? Share your thoughts and let’s spark a conversation on the future of India’s currency amid global uncertainty.
