Indian Rupee: RBI defence limits losses against US Dollar - DBS

DBS Group Research economist Radhika Rao reviews the Reserve Bank of India’s multi-layered strategy to support the Rupee in 2026. She notes recent appreciation versus the Dollar following intervention, regulatory and liquidity steps, but highlights persistent pressures from high Oil prices, capital flow weakness and a firm Dollar. Rao sees limited scope for sustained INR strength and expects gradual depreciation depending on global conditions.

RBI’s multi-layered FX strategy

"The Reserve Bank of India (RBI) has adopted a multi-layered defence strategy to support the rupee this year. This has entailed a combination of outright intervention in spot/ forwards, regulatory action, liquidity steps, administrative measures and moves to curb import-related dollar demand."

"Authorities are likely not done yet and remain ready to take further action, as required. RBI Governor Malhotra reiterated the authorities’ serious intent of stabilising the currency in a recent interview (Moneycontrol, 13 Oct), emphasising that “The RBI is determined to do whatever is necessary to ensure orderly movement in the foreign exchange market,”."

"Despite these measures, we see limited room for sustained INR appreciation on grounds of manufacturing/ trade competitiveness. A challenging flows portfolio flows outlook leaves the door open to further gradual rupee depreciation subject to global developments, with high sensitivity to oil price movements and risk sentiments."

"In 2026, markets face the spectre of elevated oil prices, geopolitical uncertainty, global competition for capital, a firm dollar (DXY appreciated +3.8% YTD), and US inflation/ deficits which have settled at levels much higher than pre-pandemic years. This has pushed up UST yields, and the US Fed kicked off its rate-hike cycle in Sep26."

"Against this backdrop, the RBI is pursuing the same objective, i.e., to ensure rupee stability, but the nature of the battle differs. The defence strategy has shifted from ‘crisis management’ mode in 2013, due to weaker domestic macroeconomic balances (a wide current account gap, high inflation, a lower reserve buffer, and wide fiscal deficits), to a ‘terms-of-trade shock and impact of a firm dollar’ in 2026."