The Rupee Is Under Pressure. Should the RBI Step In and Absorb the Risk?

Key Insights 

1. The Indian rupee fell 9.88% against the US dollar in FY26, making it Asia's weakest currency for the year. The RBI is reportedly considering reintroducing FCNR-B deposit schemes to attract NRI inflows.
    
2. When the West Asia conflict escalated in late February 2026, the RBI sold over $30 billion in the spot market in March alone.

As of April 7, 2026, the USD/INR rate traded around 93.09, with analysts warning of a slide toward 100 if geopolitical tensions rise further. 

India's forex reserves dropped over $40 billion in four weeks to March 27, 2026, falling to $688 billion from a record $728.49 billion set in February. 

The RBI now faces a difficult question. To attract more foreign money, should the central bank itself take on the currency risk that investors want to avoid?

Historically, as seen in 2013, the RBI offered banks a concessional swap rate of 3.5% per annum on FCNR-B deposits, well below the market hedging cost of 6-7% at the time. 

This effectively transferred currency risk from banks to the RBI and brought in $26 billion through NRI deposits and $8 billion in foreign borrowings. 

In the short term, such a move could stabilise the rupee and boost reserves. 

But over the longer term, if the rupee weakens further, the RBI bears those losses directly, raising questions about fiscal cost and policy sustainability.

India's Forex Position: Key Indicators at a Glance

The table below summarises the key data points explaining why pressure on the RBI to act is growing rapidly right now.
 

Despite net FPI outflows, the RBI's April 2026 Bulletin noted that FDI grew strongly and that India remains an attractive destination for greenfield projects. 

External vulnerability indicators are described as contained, and reserves are adequate. The reserves buffer is real, but its rate of erosion is a genuine concern.

What This Means for Ordinary Indians and Investors

For households, a weaker rupee translates directly into higher costs. As oil is priced in dollars, a combination of high energy prices and a weaker rupee creates imported inflation. 

The RBI's inflation target of 4% faces significant operational challenges in this environment. 

This hits transport costs, LPG prices, and everyday goods, squeezing household budgets most among lower-income families.

RBI Governor Malhotra said on April 8, 2026, that FPI flows are expected to improve, particularly in technology and financial services. 

He noted that long-term investors will continue to see value in India, while short-term money will move in and out. 

For retail investors in equity and debt markets, this message offers measured reassurance without dismissing the near-term volatility.

Analysts Warn That Absorbing Risk Has a Real Price Tag

Analysts caution that reviving the FCNR-B scheme at current global interest rates would be far more expensive for the RBI than in 2013. 

The higher cost could make this a financially burdensome measure. Critics also note that FCNR-B addresses a symptom and not the root cause. 

The deeper issue remains India's structural trade deficit and dependence on imported energy.