RBI's aggressive FX measures spark rupee rally but debate over letting it fall continues

In response to a prolonged weakening of the rupee, the RBI introduced a multi-pronged “bazooka” strategy that includes a dedicated dollar-supply window for three state-run oil companies, a daily cash reserve ratio of 99%, a large-scale open-market sale of Rs 25,000 crore, and tighter rules on foreign-exchange derivatives. The package sparked a 1.41% appreciation, moving the exchange rate from 96.61 to 95.24 per dollar within two days.

Analysts such as Vivek Kumar and Ranen Banerjee argue the measures curb speculative trading but may not offset external headwinds like elevated US bond yields, firm dollar demand and soaring oil prices. RBI Governor Sanjay Malhotra maintains the rupee is undervalued, yet experts caution that a weaker currency would raise import costs, especially for oil, and fuel inflation. The central bank says it will not target a specific level, focusing instead on limiting volatility while allowing market forces to set the rate.