The Reserve Bank of India (RBI) has reportedly sold at least $5 billion in the open market to cushion the Indian Rupee's fall against the US dollar. This intervention comes as the rupee has been facing strong headwinds due to a combination of factors, including escalating trade tensions between India and the United States, continuous foreign fund outflows, and concerns surrounding India's oil imports from Russia.

The rupee hit a lifetime low of 87.95 against the US dollar in early trading on Tuesday, August 5, 2025, prompting the RBI to intervene. The intervention involved the RBI selling dollars through state-run banks, which helped the rupee recover slightly to close at 87.80 against the dollar. However, the threat of the rupee crossing the 88 mark still remains.

The recent decline in the rupee's value is partly attributed to renewed threats from US President Donald Trump regarding higher tariffs on Indian goods and additional penalties related to India's oil imports from Russia. Trump has accused India of profiting by buying massive amounts of Russian oil and reselling it on the open market and has threatened to raise tariffs substantially on India.

India's Ministry of External Affairs (MEA) has responded strongly to Trump's tariff threats, stating that the targeting of India is "unjustified and unreasonable". The agency released a six-point statement sheet, asserting that India will take all necessary measures to safeguard its "national interests and economic security".

In addition to trade tensions, the Indian rupee has also been under pressure due to continuous outflows of foreign funds from Indian equity markets. Foreign Institutional Investors (FIIs) have sold a significant amount of Indian equities in recent sessions, contributing to the rupee's weakness.

The RBI's intervention in the currency market is not a new phenomenon. The central bank has a history of stepping in to manage exchange rate volatility and ensure stability in the financial markets. The central bank delivered a $5 billion dollar-rupee swap maturing on Monday, August 4, which also had the effect of the RBI selling dollars and absorbing rupees from the banking system.

However, some analysts believe that these interventions may only provide temporary relief and that a more comprehensive approach is needed to address the underlying issues affecting the rupee. These include addressing trade imbalances, attracting more foreign investment, and managing inflationary pressures.

The recent volatility in the currency market has led to increased uncertainty and caution among investors. Market participants are closely watching the RBI's next moves and awaiting further clarity on the trade relationship between India and the United States. The RBI's monetary policy announcement is also expected to provide further direction to the market. While a status quo is expected, any surprise rate cut or easing signal could boost market sentiment.