The Indian rupee staged a powerful comeback on Wednesday, closing sharply higher against the US dollar. This surge was driven by aggressive intervention from the Reserve Bank of India (RBI), which stepped into the currency markets to halt a sustained period of depreciation.
A Dramatic Intraday Recovery
The domestic currency closed at 90.38 against the dollar, marking a significant gain of 65 paise from its previous close of 91.03 on Tuesday. During the trading session, the rupee appreciated by as much as 1%, climbing to an intraday high of 90.08. This performance represents the currency's most substantial single-session gain in the past two months, effectively reversing a portion of the sharp decline witnessed in recent weeks.
The Mechanics of the RBI's Move
Market experts indicated that the central bank's decisive action followed growing speculation about its response to the rupee's persistent weakness. Dealers reported that the RBI conducted substantial dollar sales in the spot market. This strategy appeared designed to counter one-sided market expectations of continued rupee depreciation. Historically, the central bank has utilized the element of surprise to maximize the impact of such interventions.
The groundwork for this move may have been laid earlier. The RBI had previously executed a $5 billion dollar-buy swap, a move which traders believe set the stage for the direct intervention seen on Wednesday.
Broader Context and SBI Analysis
The recent volatility has occurred despite robust growth in goods exports, which expanded by 19.4% in November 2025. However, a report from the State Bank of India (SBI) provides crucial context. Its empirical analysis suggests that the benefits of higher export volumes are largely neutralized by the increasing cost of imports, limiting the positive impact on the current trade balance.
The SBI report highlighted that the rupee's rapid slide triggered unprecedented dollar demand in the merchant segment, with combined excess demand reaching a staggering $145 billion. To curb this extreme volatility, the RBI has intervened significantly in recent months. The report estimates that the central bank deployed approximately $30 billion between June and October 2025 to support the currency. This substantial intervention has contributed to a decline in India's foreign exchange reserves, which fell from a peak of $703 billion in June to $687.2 billion by early December.
Future Scenarios for the Rupee
Looking ahead, the SBI report outlines two potential paths for the Indian currency. The first scenario anticipates a continued depreciation, with the rupee potentially sliding towards 92.5 per dollar by mid-2026. The more optimistic second scenario forecasts a strong rebound in the second half of the next fiscal year. In this recovery path, the rupee could appreciate by roughly 6.5% to average around 87 against the US dollar. The central bank's actions will likely play a pivotal role in determining which of these trajectories materializes.
