Indian Rupee Slide & RBI’s Rescue: What Happened, Why It Matters

In early December 2025, the Indian rupee weakened sharply, losing ground against the U.S. dollar for five consecutive trading sessions. At one point, it hovered near ₹91.1 per USD, a level that triggered anxiety in currency markets and raised concerns about widening depreciation pressures on the Indian economy.

In response, the Reserve Bank of India (RBI) intervened decisively, selling U.S. dollars in the open market, mainly through state-run banks and foreign exchange operations, prompting the rupee to rebound and record its strongest daily gain in two months, closing at around ₹90.38/$.

Why the Rupee Slid Toward ₹91.1?

To understand this episode, it’s important to recognise the forces that drove the rupee’s depreciation:

• Strong U.S. dollar: A sustained rally in the U.S. currency, supported by global safe-haven demand and interest rate factors, put pressure on many emerging market currencies, including the INR.
• Capital outflows: Foreign portfolio investors (FPIs) continued to withdraw from Indian equities and debt markets amid global risk aversion, which exerted downward pressure on the rupee. Analyses suggest foreign investors pulled out over $18 billion year-to-date, with equities and bonds both seeing significant net outflows.
• Import demand & trade concerns: Persistent demand for dollars from importers — notably energy and industrial sectors — combined with uncertainties around key bilateral trade negotiations (such as with the U.S.) also contributed to the currency’s slide.

Overall, market participants viewed these dynamics as creating a one-way selling pressure on the INR, with speculative positioning further reinforcing the trend.

How the RBI Stepped In to Stabilise the INR?

The RBI’s reaction was forceful and coordinated across multiple fronts, a clear effort to halt the rupee’s rapid descent:

• Spot and NDF intervention: The central bank sold U.S. dollars in both onshore and offshore markets, directly supplying supply to meet excess dollar demand and deter speculative pressures.
• State-owned banks acting on behalf of RBI: Large currency sales were executed through major domestic banks, reinforcing the central bank’s intent to curb excessive volatility.
• Liquidity support & swaps: Complementary tools, including forex swaps and liquidity injections, were also used to support broader market confidence and counteract one-directional rupee moves.

This intervention allowed the rupee to snap its losing streak and rally, even briefly outperforming a range of regional currencies that were less volatile on the day of RBI action.

Rupee Performance Before & After RBI Intervention

Before looking at deeper implications, here’s a simple snapshot showing how the rupee moved in the days leading up to and following the RBI’s intervention:
 

The table shows how rapid depreciation was arrested through direct intervention, with the rupee recovering several paisa against the dollar in a single session, a notable reversal after persistent losses. This stalling of the slide helped market sentiment and prevented a self-reinforcing depreciation cycle that could have heightened macro instability.

Underlying Pressures Still Exist

Despite the successful short-term stabilisation, the rupee faces ongoing challenges:

• External headwinds: The U.S. dollar remains strong globally, and this often keeps pressure on emerging market currencies.
• Trade & tariff dynamics: Tariffs on Indian exports and stalled trade negotiations with trading partners have weakened confidence in export-led flows, affecting currency demand.
• Capital flow volatility: Continued portfolio outflows, especially from foreign investors, pose a structural risk if they persist, demanding further intervention or policy responses from RBI.

Analysts for brokerage firms like Jefferies argue that while the rupee has weakened, India’s macroeconomic fundamentals remain robust, suggesting that the recent depreciation may be more about capital-flow positioning than structural weakness.

What This Means for the Indian Economy

The rupee’s slide, and RBI’s measured response — has implications beyond forex traders:

1. Impact on Imports and Inflation

A weaker rupee makes imports more expensive, especially for crude oil, electronics, and industrial inputs. This can feed into inflationary pressure, which ultimately affects consumers and producers alike.

2. Export Competitiveness

While a softer INR can boost export competitiveness by making Indian goods cheaper abroad, the overall benefit may be tempered if export-related costs (like tariffs or supply chain constraints) offset currency advantages.

3. Policy Considerations

The RBI’s willingness to intervene suggests a preference for managed flexibility, allowing market forces to operate, but stepping in decisively when one-way moves threaten macro stability. This delicate balance aims to prevent destabilising forex swings without committing to rigid fixed-exchange-rate targets.

Balance Between Market Forces & Central Bank Support

The recent episode of the rupee sliding toward ₹91.1 per dollar, followed by a forceful RBI intervention, underscores the challenges of managing currency risks in a volatile global environment. While the RBI’s actions stabilized the rupee in the short term, underlying pressures, including global dollar strength, trade uncertainties, and capital outflows, remain salient.

Going forward, the central bank’s ability to reaffirm market confidence without distorting natural price discovery will be essential. Analysts caution that while the rupee’s depreciation may appear sharp, fundamentals like current account stability, foreign exchange reserves, and macro buffers remain key anchoring points for long-term resilience.

In essence, the RBI’s rescue of the Indian rupee prevented a deeper slide and bought time for markets to recalibrate, yet much will depend on broader global economic developments and domestic policy responses as the currency navigates ongoing external headwinds.
 

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