RBI steps in as rupee nears danger zone: Signs of shift in strategy?

The Reserve Bank of India (RBI) has been quietly intervening in both onshore and offshore currency markets this month, according to sources, as the rupee slipped dangerously close to its all-time low.

The sources say the RBI sold around $5 billion worth of US dollars in recent weeks — a volume that, if sustained, could make this its biggest month of net dollar sales since January. The RBI did not respond to an emailed request for comment.

The rupee touched 87.89 per US dollar last week, just shy of its record low, after US President Donald Trump doubled tariffs on Indian goods to 50% on 6 August as punishment for New Delhi’s continued purchases of Russian oil. A weaker rupee risks fuelling imported inflation and worsening pressures on an already fragile economic recovery.

Market watchers see the scale of intervention as a potential shift away from the previously measured approach under Governor Sanjay Malhotra, who took charge in December. The rupee has lost more than 2% so far this year, placing it among Asia’s weakest currencies, with about half of that decline occurring in just the last fortnight, as the tariff hike loomed.

Businessmen sensed it

Traders reported that, on several occasions last week, the RBI appeared in the offshore market minutes before domestic currency trading opened at 9 a.m. in Mumbai. By using non-deliverable forwards — a derivative instrument that doesn’t require direct dollar sales — the central bank can influence the rupee’s path while limiting the drawdown of reserves.

Latest data suggest a heavier hand in the market. India’s foreign exchange reserves fell by $9.3 billion in the week ending 1 August to $689 billion — the sharpest weekly drop since November. While part of that fall may be due to valuation changes in other currencies, analysts say it also points to more aggressive currency defence by the RBI.