Rupee near record low: Why RBI’s multiple defences are losing effectiveness

The Indian rupee is once again approaching a record low despite the Reserve Bank of India (RBI) deploying a combination of foreign-exchange intervention, higher interest rates and measures to attract dollar inflows, according to a Bloomberg News report.

The currency is just 0.2% away from its record low of 96.97 per dollar, reached in May 2026, highlighting the growing pressure from elevated crude oil prices, rising global bond yields and continued foreign portfolio outflows.

Bloomberg reported that the RBI’s intervention has contributed to a sharp decline in India’s foreign-exchange reserves. Reserves fell for a fourth consecutive week to $734 billion in the week ended October 2, from a record $785 billion in the week ended September 4. That represents a decline of about $51 billion in four weeks.

The central bank has been selling dollars in the spot market while also using sell/buy swaps in the forward market, according to Bloomberg. Traders said both measures are contributing to the decline in headline reserves.

The RBI's special window to attract dollar deposits brought in $133 billion, but Bloomberg reported that more than a third of those inflows had already been lost from the reserve pile. The decline also partly reflects the impact of a stronger US dollar.

Why rate hikes haven't stopped the slide

The RBI raised interest rates for the first time in almost four years and shifted its stance to calibrated tightening on Wednesday, signalling that further hikes could follow as inflationary pressures intensify.

Yet the rupee continued to weaken, suggesting that interest-rate increases alone are struggling to counter the broader forces affecting the currency.
Bloomberg cited HDFC Bank economist Sakshi Gupta as saying that rate hikes offer a weak short-term defence because the rupee's weakness is being driven by oil prices, equity valuations, FII outflows, the AI trade and US dollar strength.

Foreign investors have sold almost $30 billion of Indian equities this year, adding to pressure on the currency.

How much further can the rupee fall?

RBI Governor Sanjay Malhotra sought to reassure markets, saying reserves remain adequate, with around 11 months of import cover, while India's external debt stands at 94.4%. He also said the rupee may be undervalued and markets can behave irrationally in the short term.

However, Bloomberg cited Mecklai Financial Services as warning that a breach of 97 per dollar could push the rupee towards 98.50. HDFC Bank expects the currency to trade in a 96–98 range during the second half of the fiscal year.

The challenge for the RBI, therefore, is not simply to prevent a record low, but to slow depreciation without using reserves or tighter monetary policy at a pace that becomes increasingly difficult to sustain.