RBI likely to stand firm on rupee defence amid depreciation concerns

Despite RBI’s interventions, experts believe that external factors, such as a strengthening US dollar, could continue to put downward pressure on the rupee.

The Reserve Bank of India (RBI) is expected to continue defending the rupee despite speculation that governor Sanjay Malhotra might take a different approach, the Mint has reported.

A senior government official told Mint that the central bank’s strategic interventions are aimed at slowing down the currency’s decline, ensuring stability in the forex market.

Over the past six months, the rupee has weakened by about 3.5 percent against the US dollar, reaching 86.88 on March 7, Bloomberg data shows.

In comparison, the Chinese Yuan and Japanese Yen saw a milder depreciation of 1.7 percent and 0.7 percent, respectively. However, the government remains confident that the rupee will recover to December levels, backed by India's ample foreign exchange reserves.

Despite earlier expectations that Malhotra would allow the rupee to depreciate for greater competitiveness, the RBI has chosen to stick to its strategy of preventing excessive volatility in the currency market, the report said.

India's forex reserves dropped by $1.78 billion to $638.698 billion in the week ended February 28, the RBI said. The overall forex kitty had jumped by $4.758 billion to $640.479 billion in the previous reporting week.

For the week ended February 28, foreign currency assets, a major component of the reserves, decreased by $493 million to $543.35 billion, an PTI report citing RBI data said.

While India’s foreign currency buffer has doubled over the past decade, experts caution that these are built on volatile capital flows rather than export surpluses.

Former RBI Deputy Governor BP Kanungo previously pointed out that India’s forex reserves are “borrowed reserves”, the report said.

Foreign portfolio investors (FPIs) have been net sellers in the Indian market, pulling out Rs 1.37 lakh crore in 2025, data with the depositories show.

They sold stocks worth Rs 24,753 crore in the first week of March amid escalating global trade tensions and lacklustre corporate earnings, a PTI report said.

Despite RBI’s interventions, experts believe that external factors such as a stronger can continue to put downward pressure on the rupee. However, some recent measures by the central bank coupled with fallout of US’ tariffs have brought some relief.

Reuters reported that the rupee posted its best weekly gain in over two years, as a sharp decline in the dollar boosted emerging market currencies.