Rupee nears record low as RBI tightens policy

The Reserve Bank of India raised the repo rate by 25 basis points to 5.50% and moved its policy stance to "calibrated tightening." This change signals a focus on containing inflation risks while growth remains resilient. The stance also indicates that rate cuts are not on the table in the near term and that further tightening is possible if conditions warrant it.

The policy move came as the rupee was trading under significant pressure against the US dollar. The decision and accompanying communication highlighted price stability concerns amid challenging global financial conditions and domestic cost pressures, including the impact of elevated crude oil prices.

Following the policy shift, the rupee hovered near its record low, with market quotes in the mid- to high-96s per US dollar. Recent spot levels were reported around 96.7–96.8, leaving the currency just a few dozen basis points away from its all-time trough.

Some reports cited the rupee’s lifetime low as 96.96 per US dollar, while others referenced a marginally different level, underscoring a minor discrepancy in recorded figures. Despite this, there was broad agreement that the currency was trading very close to its weakest levels on record.

Market participants reported active efforts by the central bank to limit further depreciation of the rupee. These included spot dollar sales and the use of sell/buy swaps in the foreign-exchange market. Traders observed state-run banks supplying dollars, which were seen as likely acting on behalf of the central bank.

The interventions were aimed at smoothing volatility and preventing a disorderly move in the currency. However, they occurred alongside broader global market forces that continued to weigh on emerging-market currencies, including the rupee.

Despite the 25-basis-point rate increase and foreign-exchange operations, the rupee remained under downward pressure. Elevated crude oil prices continued to strain the trade balance and add to imported inflation concerns.

A stronger US dollar and higher US Treasury yields further contributed to the rupee’s weakness, as global investors reassessed risk and yield differentials. Ongoing foreign portfolio outflows added another layer of pressure, limiting the immediate impact of domestic policy tightening and FX intervention on the currency’s trajectory.