The rupee closed at 90.38 per US dollar after sinking to a fresh all-time low near 91.08 in the previous session, up 0.7% from Tuesday’s close of 91.0275. Traders said the rebound began soon after the spot market opened, when the central bank moved forcefully to support the currency, according to reports.
Heavy intervention of RBI
State-owned banks aggressively sold dollars on behalf of the Reserve Bank of India, with the rupee beginning a sharp intraday recovery after briefly breaching the 91 level. Jigar Trivedi, senior research analyst at Reliance Securities, said the move was aimed at preventing a one-sided decline that had overstretched the currency. “The prompt action by the central bank, similar to the forceful interventions seen in recent months, was aimed at breaking the rupee’s one-sided decline,” he said.
The rupee rose as much as 1% intraday, its biggest gain in seven months, as the RBI intervened by selling the dollar in the domestic market. The move followed a series of record lows in recent weeks that fueled debate over why the central bank had not acted more forcefully earlier.
Traders quoted by Bloomberg said the RBI may have intervened on Tuesday after buying $5 billion through foreign exchange swaps, giving it space to sell dollars in the spot market. Wednesday’s move echoes a similar episode in October, when the RBI took decisive action to disrupt speculative positions against the rupee.
The rupee remains under pressure
Before Wednesday’s rebound, the rupee was down nearly 2% in December and emerged as Asia’s worst-performing currency this year. The slide was driven by the deadlock in US-India trade talks, record portfolio outflows and continued corporate demand for dollars.
Clearing house data cited by Reuters showed that importer activity remained elevated in November while exporters held back, keeping the currency under strain for months. Foreign investors have withdrawn about $18 billion from Indian equities this year, adding to pressure on the rupee along with firm imports and uncertainty around trade talks with Washington.
Trivedi said the recent losses were due to “portfolio outflows and persistent dollar demand that overstretched the currency,” adding that “the rupee is still expected to remain under pressure until progress is made in the US trade talks.”
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Assessment discussion, nerve ease
The rupee’s sharp fall left markets volatile, especially after it breached the psychologically important 91 level. Trustline Holdings CEO N. Arunagiri said the episode raised concerns but did not signal a deeper breakdown. “With the Indian rupee briefly breaching the 91 level, a natural question in most investors’ minds is whether this is a panic moment,” Arunagiri said, adding that the situation has stabilized after “quick RBI intervention”.
Arunagiri argued that the latest move was “better understood as an adjustment rather than a structural rupture,” driven by the RBI’s relatively dovish stance rather than the dynamics of capital flows, delays in the US-India trade agreement and any deterioration in India’s macro fundamentals.
According to Arunagiri, real effective exchange rate metrics suggest that the rupee is now trading near fair value, pointing to stability rather than a random decline. “From here, the balance of probabilities points to stabilization and normalization, not random decline,” Arunagiri said.
Dollar strength caps gain
While the RBI’s aggressive intervention has eased immediate pressure on the rupee, analysts have warned that further gains may be limited until there is clarity on trade talks with the US.
For now, the central bank’s message was unequivocal: Speculative bets on an unchecked slide in the rupee will be met with force.
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)
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