Dollar vs Rupee: The Indian rupee is under pressure. Despite excellent GDP growth in the September quarter, the rupee crossed the 90 level against the US dollar and reached its lowest level. In 2025, the rupee has declined by 4.9 percent against the dollar and with this the world’s 31st largest currency became the third worst performer.
There are many big reasons for this like continuously increasing trade deficit, 50 percent tariff imposed by America on the import of Indian products, selling by foreign investors etc. On top of that, pressure on the rupee is also increasing due to no agreement between India and America regarding trade deal.
This is no less than a challenge for Reserve Bank of India (RBI) Governor Sanjay Malhotra and other officials as they are trying to balance the increased flexibility of the rupee with market stability while avoiding old financial problems.
What is RBI doing?
According to a Bloomberg report, RBI Governor Sanjay Malhotra aims to resolve currency speculation, as well as avoid the aggressive intervention tactics used by his previous governor last year. Less intervention could encourage one-sided trading, leading to a sharp decline, while too much intervention through rupee purchases could reduce the liquidity of the banking system, impacting economic growth and depleting foreign exchange reserves.
“Malhotra seems willing to stick to a blow-against approach,” says Ishwar Prasad, former head of the IMF’s China division and now professor of economics at Cornell University. “That means not completely resisting market pressure to push a currency’s value in a particular direction, but intervening at the margin to limit short-run exchange rate volatility and overshooting,” he told Bloomberg.
According to Bloomberg report, the intervention strategy is discussed every day at the South Mumbai headquarters of RBI before the market opens. The Financial Markets Committee, which has representatives from different departments, evaluates exchange rate pressures. If necessary, several meetings can be held throughout the day, as confirmed by a senior Central Bank official. The final authority lies with the Governor. The gist of whatever comes out of the meeting is sent to senior dealers of big public sector banks, who work with special facilities to implement the RBI instructions.
Banks participating in the international exchange, including private sector institutions, should avoid maintaining proprietary positions and limit activity to the extent of closing existing positions and managing client flows. When the senior dealer raises his hand and signals, it means that other traders have “no problem.” Compensation for these transactions is very low, with RBI charging fees that barely cover the operational costs.
RBI took a big decision
Meanwhile, RBI has also taken a big decision. Under this, the Reserve Bank has announced to hold a dollar-rupee buy-sell swap auction of Rs 45000 crore (about Rs 5 billion billion) on December 16. The duration of this auction will be for 36 months or 3 years. In this, banks will sell dollars to RBI and in return they will get rupees from the Reserve Bank. Market experts believe that this auction will inject liquidity of about Rs 45,000 crore into the banking system, which will help in better implementation of the recent cut in repo rate along with reducing the rates on overnight instruments. As the availability of rupee increases in the market, the pressure on it will reduce.
The relation of interference in currency is old
India has a long standing relationship with currency interference. In 1991, during the Balance of Payment Emergency, gold reserves were used to make import payments in case foreign currency ran out. Similarly, in 2013, there was a lot of pressure on the rupee during the announcement of reduction in quantitative easing by the US Federal Reserve, after which the RBI governors focused more on strengthening India’s foreign reserves, which reached $ 686 billion by November 28. This included currency holdings worth $557 billion and gold worth $106 billion.
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