Rupee’s calm fuels speculation of RBI returning to old playbook

The rupee is down 3.6% so far this year, making it the worst-performing currency in Asia | Photo Credit: Andrii Yalanskyi;iStockphoto

India’s rupee has barely budged over the past three weeks, prompting some traders to speculate that the central bank is once again tightening its grip on the currency.

The one-month volatility in the dollar-rupee pair has crashed to the year’s lowest level this month. The currency has been stuck in a narrow range, struggling to break past the 89-per-dollar mark after hitting fresh lows.

The Reserve Bank of India has built up short dollar positions of at least $15 billion in the non-deliverable forwards market over the past two to three weeks to defend the rupee, Bloomberg News reported last week. 

The move marks a shift in tone under Governor Sanjay Malhotra, who since taking charge in December had allowed the rupee to move more freely — in contrast to his predecessor Shaktikanta Das’s tight grip on the currency.

“The RBI is probably uncomfortable with the pace of weakness seen over the past few months,” said Michael Wan, senior currency analyst at MUFG Bank. “It’s probably a signal to the market in the near-term that RBI doesn’t want dollar/rupee to cross 88.80 levels, but it’s not sacrosanct by any means.”

The RBI didn’t respond to an email seeking comments.

In this month’s monetary policy, Malhotra said the central bank was keeping a close watch on the rupee’s movements and would take “appropriate steps” as warranted.

The rupee is down 3.6% so far this year, making it the worst-performing currency in Asia. The drop has helped correct the currency’s overvaluation against its trading partners, making it more fairly valued.

“The RBI doesn’t like a volatile exchange rate, especially in times where risks can invigorate speculative interests,” said Dhiraj Nim, foreign exchange strategist at Australia and New Zealand Banking Group Ltd. in Mumbai.

The central bank is in a growth supportive mode and a volatile currency with a depreciation bias is a bigger constraint on the domestic monetary policy where the room to maneuver is limited, he said.

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Published on October 13, 2025