By the time markets settled into the session, the old pressures had reasserted themselves. And according to Naveen Mathur, Director of Commodities, Currencies and International Business at Anand Rathi Shares, those pressures are not going away anytime soon.
What the RBI did — and why it was not enough
The RBI’s circular, which came in over the weekend, directed banks to bring down their gross forex positions. The intent was clear: reduce speculative dollar buying and give the rupee some breathing room. It worked — for about an hour.
The problem is that the forces pushing the rupee lower are structural, not speculative. Mathur points to four simultaneous headwinds that no single central bank action can easily neutralise.
First, the Middle East conflict continues to escalate, keeping risk sentiment globally fragile. Second, Brent crude is holding above $110 a barrel with WTI crossing $100 — a direct hit to India’s import bill and current account. Third, FPI outflows in March alone have crossed Rs 1,12,000 crore, the highest in any single month in the past 17 months. And fourth, the global interest rate story has flipped — rate cuts are now off the table, and rate hikes are back on the agenda, which strengthens the dollar index and weakens emerging market currencies like the rupee.
Add to this the year-end dollar demand from oil marketing companies and other large institutions, and the upward pressure on the dollar becomes even more pronounced.
How much firepower does the RBI have left?
The RBI has not been sitting still. Mathur estimates the central bank has already deployed roughly $30–35 billion in forex reserves to manage rupee volatility. That intervention is visible in the numbers: India’s forex reserves, which stood at approximately $728 billion as recently as late February, have now dropped below $700 billion.The reserves remain substantial — India is in a far stronger position than it was during the 2012 currency crisis or the turmoil of the Global Financial Crisis. But every dollar spent on defending the rupee is a dollar less in the buffer. The RBI cannot keep intervening indefinitely, and Mathur suggests the central bank knows this.
“The RBI would be looking to use as many tools as possible to curb volatility,” he said, “but the moderation of the rupee would largely depend on how the dollar index performs and how the Middle East tensions pan out.”
What to watch until April 10
The RBI’s notification gives banks until April 10 to comply with the new forex position limits, and there are indications that discussions between the RBI and banks on the specifics of the circular are still ongoing. Mathur believes that if those conversations produce some relaxation or clarity, there is a possibility of short-term stabilisation — even a mild trend reversal in the rupee’s favour.
But he is careful not to overstate it. Any near-term strength in the rupee will be contingent on the dollar index softening and no fresh escalation in West Asia. Both are uncertain at best.
The big picture remains unchanged: the rupee is in a depreciation bias, the RBI is fighting it with the tools it has, and the outcome will be decided by forces well beyond India’s borders.