Rupee’s Strange Calm Ignites Fears of RBI’s Iron Grip Tightening

The Indian rupee’s uncharacteristic stability over the past three weeks has sparked speculation among traders that the Reserve Bank of India (RBI) is tightening its control over the currency. The dollar-rupee pair’s one-month volatility has plummeted to its lowest level this year, with the rupee confined to a narrow trading range, unable to breach the 89-per-dollar mark after recent lows. This calm, closing at 88.67 per dollar on Monday, has raised eyebrows, particularly as Bloomberg News reported that the RBI has amassed short dollar positions of at least $15 billion in the non-deliverable forwards market over the past two to three weeks to bolster the currency.

This marks a shift in strategy under RBI Governor Sanjay Malhotra, who, since assuming office in December 2024, had adopted a more flexible approach to rupee management compared to his predecessor Shaktikanta Das’s rigid oversight. “The RBI is probably uncomfortable with the pace of weakness seen over the past few months,” said Michael Wan, senior currency analyst at MUFG Bank. “It’s probably a signal to the market in the near-term that RBI doesn’t want dollar/rupee to cross 88.80 levels, but it’s not sacrosanct by any means.”

The rupee has depreciated by 3.5% in 2025, making it Asia’s worst-performing currency. This decline has alleviated its prior overvaluation against trading partners, aligning it closer to fair value. However, the RBI’s recent interventions suggest discomfort with further volatility, especially amid global risks that could spur speculative trading. “The RBI doesn’t like a volatile exchange rate, especially in times where risks can invigorate speculative interests,” noted Dhiraj Nim, foreign exchange strategist at Australia and New Zealand Banking Group Ltd. in Mumbai.

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In its October monetary policy statement, Governor Malhotra emphasized that the RBI is closely monitoring the rupee’s movements and will take “appropriate steps” as needed, though the central bank did not respond to requests for comment. The rupee’s stability was further supported by news of a potential US-India trade deal, which could bolster economic ties and ease currency pressures.

Analysts suggest the RBI’s actions reflect a growth-supportive stance, as a volatile or depreciating rupee could constrain domestic monetary policy flexibility. With limited room to maneuver, the central bank appears intent on curbing excessive fluctuations to maintain economic stability. As global and domestic pressures persist, the RBI’s tightened grip on the rupee signals a cautious approach to navigating India’s economic challenges.

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