RBI Battle to Save the Rupee
The Indian rupee, a symbol of national economic health, has faced many turbulent times since independence. Yet few episodes have rivaled the currency pressures witnessed in mid-2025. As global dynamics shifted, the Reserve Bank of India (RBI) undertook a massively proactive approach to stabilizing India’s currency, deploying aggressive interventions both onshore and offshore in the foreign exchange (forex) markets. This crisis stemmed from twin shocks: escalating tariffs imposed by the U.S. and trade-related outflows, leading to one of the sharpest weekly falls in India’s forex reserves in recent memory.
The August 2025 Shock: What Triggered It?
The story began with a diplomatic standoff. In July, U.S. President Donald Trump announced a steep hike in tariffs on Indian exports—doubling the rate to 50% in retaliation for India’s ongoing imports of Russian oil. This immediately impacted key sectors like textiles, pharmaceuticals, and auto components, which rely heavily on American markets. As soon as announcements hit the wire, foreign portfolio investors (FPIs) started a rapid exit, pulling out more than $2 billion from Indian equities in a matter of weeks. The rupee, which had been steady against the dollar, suddenly tumbled by over 3%, settling at an unprecedented ₹87.89/USD in early August 2025.
How RBI Responded: Anatomy of a Forex Intervention
Sensing a potential crisis, RBI Chairman Sanjay Malhotra coordinated what may go down as the largest “light-touch” intervention in Indian history. The RBI sold over $5 billion in USD across both the domestic “spot” forex markets and the so-called “Non-Deliverable Forwards” (NDF), an offshore market used for currencies with capital controls. The goal wasn’t just to prop up rupee values, but to preempt speculative attacks, calm investor nerves, and signal resilience.
Crucially, the RBI used the NDF market to avoid excessive depletion of onshore dollar reserves (critical in maintaining macroeconomic stability). This market, which operates before the opening bell of Indian financial markets, allowed RBI to surgically adjust currency expectations while minimizing direct shock to domestic liquidity. In parallel, the central bank briefly raised key interest rates and tightened liquidity using Open Market Operations (OMOs) and repo facility changes, keeping credit flowing but curbing speculation.
Why Does the Rupee Matter to Every Indian?
Currency volatility isn’t only an abstract macroeconomic problem. Whenever the rupee depreciates:
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Fuel, electronics, and medicines become drastically more expensive, leading to “imported inflation”
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Outflows discourage foreign investment and may lead to higher government borrowing costs
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Exporters benefit initially as their goods are cheaper to buyers abroad, but effective business planning and hedging become much more complex
A depreciating rupee also hits the common household. Everything from petrol prices to smartphone costs edges upward. In the longer term, if inflation stays high, the RBI can’t easily cut rates to stimulate the economy, potentially stalling India’s recovery and job growth.
New RBI FX Strategy: Controlled Volatility and Export Boost
Under Governor Malhotra, RBI’s philosophy shifted in late 2024 to “managed floating.” This means occasional interventions, but greater tolerance of natural rupee depreciation, hoping to make Indian exports more competitive while conserving precious dollar reserves.
Key RBI tools include:
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Dollar sales from reserves
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Bilateral currency swaps with nations like Japan, UAE
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Tightening/loosening interest rates (Repo rate at 6.5% as of August 2025)
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Import rationalization—discouraging luxury imports during crises
India’s forex reserves, though depleted by over $9 billion in August, still cover nearly 11 months of merchandise imports, offering a solid cushion against further volatility.
Sectoral Impact and Hedging Best Practices
Corporate India responded by ramping up FX hedging strategies, especially in IT, pharma, and auto sectors. Banks promoted forward contracts, swaps, and options to clients, while exporters were encouraged to invoice in rupees and use Special Non-Resident Rupee (SNRR) accounts after recent FEMA updates.
Small businesses can:
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Monitor weekly RBI reserve reports and currency announcements
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Evaluate trade exposure and consult with banks for hedging contracts
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Diversify trade partners, focusing on EU, UK, ASEAN markets
Long-term Policy: Reducing Dollar Dependency
Beyond crisis firefighting, RBI and the government’s focus includes:
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Expanding domestic production via “Make in India”
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Negotiating new trade agreements away from the U.S.
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Lowering inflation below 4% through fiscal controls
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Attracting FDI by improving ease-of-doing-business rankings
Conclusion
The August-September 2025 currency drama demonstrates the RBI’s evolving toolkit for fiscal stability. It also shows every Indian—business owners, savers, investors, and everyday households—how closely national fortunes are tied to currency policy. Staying informed and adapting hedging or investment strategies accordingly is the new norm for financial health.