MUMBAI – The Reserve Bank of India (RBI) has returned to a familiar strategy, heavily intervening in the currency market to support the rupee, mirroring its approach from February 2025. This forceful action, initiated on Wednesday, October 15, 2025, comes after a period where the central bank had been subtly defending the 88.80 level by intermittently selling dollars.
The rupee has been under pressure due to a combination of global and domestic factors. These include equity outflows, concerns about U.S. trade tariffs on Indian imports, and a generally risk-averse global sentiment. On October 14, 2025, the rupee touched a new closing low of 88.80 per dollar, and in early trade on the same day, it depreciated further to 88.77 against the greenback. The rupee's struggles are not necessarily indicative of broad dollar strength, as the U.S. Dollar Index has shown mixed performance against other major currencies. This suggests India-specific pressures are at play.
The RBI's intervention involved significant dollar sales through state-run banks before the market's usual opening hours, signaling a strong intent to curb the rupee's decline. This preemptive move signifies a shift in tactics from a passive defense to a more assertive approach aimed at resetting market positioning. Traders reported heavy offers hitting the market within minutes, driving the dollar-rupee pair significantly lower. Stop-loss orders on long dollar positions were triggered, amplifying the impact of the RBI's intervention and pushing the rally to a high of 87.75 on the interbank order-matching system.
The scale and timing of this intervention bear a striking resemblance to the central bank's actions in February 2025, when it similarly acted to prop up the rupee. The central bank's net short positions in the forward book peaked at $88.7 billion in February 2025, when the rupee was under pressure following the US administration's decision to increase tariffs on Indian imports.
The RBI's recent actions have had an immediate impact, with the rupee jumping to near 88.10 against the U.S. dollar on Wednesday. The intervention has also crushed rupee volatility, with the 10-day annualized realized volatility falling to multi-month lows. The rupee has traded in a narrow band in recent sessions, the narrowest since December 2024, suggesting the central bank has reverted to its practice of heavy market intervention.
However, some analysts suggest that the RBI's intervention may not be a long-term solution. A weaker rupee could hurt dollar returns for foreign investors and risk triggering further outflows. Moreover, continuous outflow of foreign funds from the Indian stock market is expected to remain a key concern for the Indian Rupee. India's foreign exchange reserves have also seen a slight dip in recent weeks. As of October 3, 2025, the reserves stood at $699.96 billion, following a figure of $700.24 billion reported the previous week.
Looking ahead, market participants are closely watching developments in India-US trade relations, as any related news could trigger volatility in the currency. A team of senior officials from India will visit the U.S. this week for trade talks, with negotiations on the proposed bilateral trade agreement progressing.
