Reserve Bank of India revives pre-market intervention to support rupee

India’s central bank has reintroduced aggressive pre-market foreign exchange intervention to stabilize the rupee, which has fallen to near 95-96 per US dollar—the weakest levels in years. The Reserve Bank of India (RBI) is selling dollars before official trading begins to absorb downward pressure and prevent a disorderly decline, a tactic last used during past currency crises. The move comes as global oil price hikes and geopolitical tensions weigh on the currency, forcing the RBI to act preemptively. Alongside dollar sales, the central bank has capped banks’ net open foreign exchange positions at around $100 million, limiting speculative bets against the rupee. This restriction aims to curb excessive short-selling that could amplify volatility. Unlike defending a fixed exchange rate, the RBI is adopting a ‘leaning against the wind’ strategy—smoothing volatility without committing to a peg. This approach avoids the risk of depleting forex reserves, as seen in past currency crises like the 1992 UK pound collapse. The goal is to reduce panic, allow businesses to adjust, and signal stability without rigid rate targets. The RBI is also evaluating ways to boost foreign capital inflows, including revisiting the Foreign Currency Non-Resident (FCNRB) deposit scheme and easing tax rules for global investors in Indian securities. These measures could increase organic demand for the rupee, reducing reliance on direct intervention. A weaker rupee raises import costs, particularly for crude oil, which could fuel inflation and restrict the RBI’s ability to cut interest rates. The central bank’s dual approach—market intervention and structural reforms—aims to balance short-term stability with long-term resilience.