The Rupee Under Siege: Why the RBI's Defence Is Getting Harder to Hold

Key Takeaways
 

1. The Indian rupee slipped below 95 against the US dollar on April 30, 2026, hitting a fresh record closing low, as weakening capital inflows replaced speculative positioning as the primary pressure point, according to a Bloomberg report.

2. Since the West Asia conflict erupted in late February 2026, the RBI intervened aggressively, selling over $30 billion in the spot market in March alone and building a large short dollar position in the forward market, yet the rupee continued to weaken.

India's efforts to support the under-pressure rupee are expected to face greater challenges in the coming months as weak capital inflows replace speculative positioning as the main pressure point. 

The RBI has introduced a series of measures to curb speculative activity and stabilise the currency amid its record low, including capping banks' net open position at $100 million.

Barring authorised dealers from offering INR-linked non-deliverable derivative contracts to residents and non-residents.

The short-term interventions are buying time but at a mounting cost. 

Uncertainty around the RBI's FX strategy has pushed up market interest rates, amplifying the growth-dampening effects of the energy shock. 

Foreign investors may become wary of bringing capital into India if there is a risk that exit routes could later be constrained. 

The irony is sharp: measures designed to protect the rupee may discourage the very inflows needed to support it.

Rupee Pressure Dashboard: Key Indicators as of April 2026

The breadth of pressure on India's currency is best understood through multiple data points simultaneously. The table below captures the full picture.

The RBI's April 2026 Bulletin acknowledged that foreign portfolio investment recorded net outflows, reflecting global risk aversion, even as gross FDI grew strongly and net FDI improved. 

The divergence between stable long-term investment and volatile portfolio flows precisely encapsulates India's current external vulnerability.

What a Weak Rupee Means for India's Households and Businesses

The rupee has depreciated close to 10% against the dollar in FY26, making it one of Asia's weaker-performing currencies. 

India's dependence on imported oil has amplified its vulnerability, with higher crude prices simultaneously widening the current account deficit. 

For households, this feeds directly into higher fuel prices, costlier imported goods, and eventually broader inflation.

Despite these pressures, the RBI's April 2026 Bulletin affirmed that India's financial system remains resilient, with forex reserves adequate at approximately 11 months of import cover. 

Banking system capital adequacy, liquidity, asset quality, and profitability parameters all remain strong. These buffers offer a genuine cushion if deployed with care.

Analysts Flag a Structural Problem That Intervention Cannot Fix

The pressure on the rupee is not merely cyclical but structural. 

Higher global oil and gas prices are widening the current account deficit, reflecting India's heavy dependence on energy imports, while capital inflows are weakening due to global risk aversion and declining investor appetite for Indian assets.

Economists have flagged that administrative controls cannot be sustained without affecting India's broader agenda. 

Alternative tools exist, the central bank could attract inflows through non-resident deposits or adjust interest rates but this time, the RBI has relied on targeted restrictions instead. 

A stronger rupee, analysts argue, must ultimately follow stronger fundamentals export competitiveness, stable capital flows, and deeper financial markets.

Conclusion

The RBI's rupee defence is a holding action, not a permanent solution. India's long-term currency stability will depend on energy diversification, export growth, and deeper capital markets, not just central bank firepower deployed in moments of external stress.

FAQs

Will the RBI scale back its rupee defence to preserve reserves? 

Based on early 2026 data, the Reserve Bank of India (RBI) is likely to shift from aggressive dollar selling to more targeted intervention to preserve forex reserves, allowing the rupee to depreciate gradually. 

What are the reasons that RBI is taking the rupee fall so lightly?  

The RBI does not view the rupee's decline as a crisis, but rather as a necessary, market-driven adjustment to a strong US dollar and rising import costs.