December 17, 2025 (Navroze Bureau) ; After weeks of persistent pressure on the Indian rupee, the Reserve Bank of India (RBI) has returned with a decisive intervention to stem the currency’s one-way slide, signalling its intent to prevent excessive volatility and restore market confidence. The central bank’s actions come amid global dollar strength, sustained foreign fund outflows, and rising concerns over imported inflation.
Market participants observed increased RBI activity in the foreign exchange market, particularly during sharp intraday declines, indicating that the central bank is no longer comfortable allowing the rupee to weaken unchecked.
Rupee Under Pressure
The rupee has been facing sustained depreciation pressures due to a combination of global and domestic factors. Strong economic data from the United States, expectations of higher-for-longer interest rates, and geopolitical uncertainties have pushed the dollar higher against most emerging market currencies.
Domestically, rising crude oil prices, widening trade deficits, and intermittent foreign institutional investor (FII) outflows have added to the strain. The rupee breached key psychological levels, raising concerns that unchecked weakness could fuel inflation and hurt macroeconomic stability.
RBI’s Strategic Intervention
According to traders and currency dealers, the RBI stepped up its presence through dollar sales via state-run banks, a method it often employs to manage the exchange rate discreetly. While the central bank does not target a specific level for the rupee, it aims to prevent sharp, speculative-driven moves.
The RBI’s intervention helped slow the pace of depreciation and brought stability during volatile trading sessions. Market participants interpreted the move as a clear signal that authorities are keen to avoid disorderly market conditions.
Balancing Growth and Stability
Economists note that the RBI faces a delicate balancing act. On one hand, allowing a gradual depreciation helps exports remain competitive. On the other, rapid currency weakness can raise import costs, especially for crude oil, fertilisers, and electronics, thereby pushing up inflation.
With retail inflation still a concern and global uncertainties persisting, the RBI appears focused on managing volatility rather than defending a fixed exchange rate.
Global Factors at Play
The rupee’s weakness mirrors broader trends across emerging markets. The strong dollar has weighed heavily on Asian currencies, while risk-off sentiment has prompted investors to move funds into safe-haven assets.
Additionally, geopolitical tensions and uncertainty around global growth have contributed to cautious investor sentiment, increasing pressure on capital flows into developing economies like India.
Impact on Markets and Businesses
Currency stability is crucial for Indian businesses, especially those dependent on imports. A sharp fall in the rupee raises costs for sectors such as aviation, oil marketing, and manufacturing, while also impacting companies with foreign currency borrowings.
Equity markets reacted positively to signs of RBI intervention, as investors took comfort in the central bank’s proactive stance. Bond markets also remained stable, reflecting confidence in India’s macroeconomic fundamentals.
Forex Reserves Provide Cushion
India’s substantial foreign exchange reserves offer the RBI a strong buffer. Analysts point out that the central bank has adequate ammunition to smoothen volatility without compromising long-term financial stability.
The RBI has historically used reserves judiciously, intervening only when market movements become excessive or speculative in nature.
Expert Views
Currency strategists believe the RBI’s actions reflect its broader philosophy—allowing market-driven movements while stepping in to curb abrupt swings. Experts also note that clear communication and timely intervention are key to preventing panic-driven sell-offs.
Some analysts caution that while intervention can provide temporary relief, sustained rupee stability will depend on global developments, capital inflows, and domestic economic performance.
Outlook for the Rupee
Looking ahead, the rupee’s trajectory will likely be influenced by global interest rate trends, crude oil prices, and FII activity. While near-term volatility may persist, RBI’s renewed presence is expected to keep extreme movements in check.
Market participants will closely watch future RBI actions, macroeconomic data, and global cues to assess the currency’s direction.
Conclusion
The RBI’s decisive return to the forex market marks a clear shift from tolerance of gradual depreciation to active volatility management. While challenges remain, the central bank’s intervention has reassured markets that it stands ready to act to protect financial stability and prevent disorderly currency movements.
Summary
The RBI stepped in decisively to curb the rupee’s sharp fall, signalling its intent to manage volatility amid global dollar strength, capital outflows, and concerns over inflation and financial stability.