The Crossbill News Desk
India’s currency and foreign exchange reserves are facing mounting pressure, with the Reserve Bank of India (RBI) warning that a strong US dollar, rising import costs, uncertain capital flows and growing trade policy risks could weigh further on the rupee.
The warning comes as the currency has continued to depreciate, while the country’s forex reserves have recorded another sharp weekly decline.
The RBI’s latest Monetary Policy Report (MPR), as reported by The Hindu Business Line, also flagged the risks posed by an escalation in geopolitical tensions and unexpectedly aggressive monetary tightening by major central banks.
The report estimated that a 5% depreciation of the rupee against the baseline would push inflation higher by around 40 basis points (bps), highlighting the potential impact of currency weakness on the domestic economy.
Amit Pabari, managing director of CR Forex Advisors, said the RBI’s recent 25 basis points (bps) repo rate hike had failed to strengthen the rupee because markets had already anticipated the move.
“A 50-bps hike, for instance, could have delivered a more meaningful positive shock for the rupee. Instead, the RBI delivered what was expected, triggering a sell-the-news reaction as market participants sold the rupee and bought dollars,” said Pabari, noting that that the rupee has fallen by nearly 7.5% in calendar year 2026 and around 3.8% since the beginning of the current financial year, moving from around 90 to nearly 96.75 against the US dollar.
Earlier this week, the rupee closed at 96.7 against the dollar, its lowest level in five months, amid a sustained decline over recent months. The currency has emerged as Asia’s worst-performing currency against the US dollar, with experts warning that it could weaken further to 100 per dollar or beyond.
The pressure on the rupee has coincided with a significant reduction in India’s foreign exchange reserves. The country’s forex reserves fell by $12.95 billion to $734.60 billion in the week ended October 2, according to data released by the RBI on Friday, The Economic Times reported.
The decline was primarily driven by a fall in foreign currency assets and gold reserves. In the preceding reporting week, ended September 25, the reserves had already dropped by $18.34 billion to $747.56 billion.
The latest fall comes amid elevated crude oil prices and rising US Treasury yields, both of which have added to the pressure on the rupee.
The RBI has intervened in the foreign exchange market to manage volatility, even as the currency continues to face challenges from external economic and financial conditions.
With the rupee weakening and forex reserves declining for a second consecutive reporting week, the RBI faces the challenge of containing currency volatility while limiting the potential inflationary impact of a sustained depreciation.
The warning comes as the currency has continued to depreciate, while the country’s forex reserves have recorded another sharp weekly decline.
The RBI’s latest Monetary Policy Report (MPR), as reported by The Hindu Business Line, also flagged the risks posed by an escalation in geopolitical tensions and unexpectedly aggressive monetary tightening by major central banks.
The report estimated that a 5% depreciation of the rupee against the baseline would push inflation higher by around 40 basis points (bps), highlighting the potential impact of currency weakness on the domestic economy.
Amit Pabari, managing director of CR Forex Advisors, said the RBI’s recent 25 basis points (bps) repo rate hike had failed to strengthen the rupee because markets had already anticipated the move.
“A 50-bps hike, for instance, could have delivered a more meaningful positive shock for the rupee. Instead, the RBI delivered what was expected, triggering a sell-the-news reaction as market participants sold the rupee and bought dollars,” said Pabari, noting that that the rupee has fallen by nearly 7.5% in calendar year 2026 and around 3.8% since the beginning of the current financial year, moving from around 90 to nearly 96.75 against the US dollar.
Earlier this week, the rupee closed at 96.7 against the dollar, its lowest level in five months, amid a sustained decline over recent months. The currency has emerged as Asia’s worst-performing currency against the US dollar, with experts warning that it could weaken further to 100 per dollar or beyond.
The pressure on the rupee has coincided with a significant reduction in India’s foreign exchange reserves. The country’s forex reserves fell by $12.95 billion to $734.60 billion in the week ended October 2, according to data released by the RBI on Friday, The Economic Times reported.
The decline was primarily driven by a fall in foreign currency assets and gold reserves. In the preceding reporting week, ended September 25, the reserves had already dropped by $18.34 billion to $747.56 billion.
The latest fall comes amid elevated crude oil prices and rising US Treasury yields, both of which have added to the pressure on the rupee.
The RBI has intervened in the foreign exchange market to manage volatility, even as the currency continues to face challenges from external economic and financial conditions.
With the rupee weakening and forex reserves declining for a second consecutive reporting week, the RBI faces the challenge of containing currency volatility while limiting the potential inflationary impact of a sustained depreciation.
Comments (0)
Leave a Comment