The Indian rupee has remained under significant pressure since the escalation of the Middle East conflict in late February, depreciating by nearly 6% and hitting multiple record lows against the US dollar. The currency is now approaching the 97-mark against the greenback, as ongoing tensions involving the United States, Israel, and Iran continue to weigh on global financial markets.
RBI Considers Measures to Stabilize the Rupee
With the rupee's decline accelerating, the Reserve Bank of India (RBI) is evaluating a range of measures to help stabilize the currency, according to people familiar with the matter. Senior RBI officials, including Governor Sanjay Malhotra, have held several internal meetings in recent days to review potential steps to curb the slide, as reported by Bloomberg.
One of the key measures being examined is a possible interest rate increase, one person said. While the RBI's next scheduled monetary policy announcement is due on June 5, the central bank has previously taken unscheduled action, including an out-of-cycle move in May 2022.
Officials are also considering steps to boost dollar inflows from overseas investors. According to another person familiar with the discussions, these include a foreign currency deposit scheme for non-resident Indians (NRIs) as well as the potential issuance of a sovereign dollar bond. Any move related to a sovereign bond would require a government decision, the person added.
Comparison with 2013 Taper Tantrum
The discussions have drawn comparisons with the measures India took during the 2013 taper tantrum period, when authorities launched a deposit scheme through local banks to attract foreign currency from non-residents. One of the people said the RBI believes a similar program could mobilize as much as $50 billion this time, compared with around $30 billion raised earlier.
People familiar with the central bank's thinking said policymakers now believe the rupee's depreciation has been sharper than initially expected. They said officials continue to view India's macroeconomic fundamentals and banking system as strong, even though that resilience is not currently reflected in the currency market.
Immediate Priority to Prevent Further Weakness
According to one of the people, preventing further weakness in the rupee has become the central bank's immediate priority, with policymakers prepared to use all available options if needed.
A rate hike could support foreign bond inflows by increasing the yield gap between India and the United States, which has fallen to its narrowest level in more than ten years. Foreign investors have continued to pull money out of Indian assets in 2026, with equity outflows already exceeding last year's record level of $19 billion.
Upcoming Monetary Policy Meeting
The RBI's six-member monetary policy committee is scheduled to meet from June 3 to June 5. The benchmark policy rate has remained unchanged at 5.25% so far this year, though economists largely expect rates to move higher in the coming months amid rising inflation.
Earlier this week, the RBI announced a $5 billion swap auction to inject liquidity into the banking system and strengthen its near-term dollar reserves. People familiar with the matter said additional swap auctions remain a possibility.
