Table of Contents
The misconception — “RBI is doing nothing”
Rupee hit 90! This is the headline of all the news papers as well as news channels in India. Diversified people think diversely, but often it’s surrounded with misconceptions. What people believe:
- Rupee hit 90
- RBI silent
- Therefore, policy failure
Actual thing:
The rupee did not suddenly collapse. It gradually weakened under global dollar strength and capital outflows, and crossing ₹90 was more of a psychological shock than an economic breakdown. A psychological level means:
- media amplifies panic
- public feels “currency crash”
- but economists expected this movement already
In fact, analysts earlier predicted that the rupee could move toward the ₹90 range as global pressures increase.
Why the rupee is depreciating (without blaming RBI)
- Strong US dollar (global factor)
- Higher US interest rates
- Capital moving to safer US assets
- India’s import dependence (oil)
What RBI can do vs what RBI chooses to do
What RBI can do:
- Sell dollars aggressively
- Hike interest rates sharply
- Fix a target level (like ₹85)
Why RBI doesn’t:
RBI does not defend a fixed number (like ₹75 or ₹80).
India follows a “managed float” system where:
- Rupee is decided by market demand & supply
- RBI steps in only to reduce extreme volatility
- Not to “save pride” or defend an exact level
So, RBI intervenes silently:
- Selling dollars from forex reserves
- Using forward contracts
- Tightening liquidity when needed
They don’t announce every action because loud intervention invites speculators to attack the rupee more.
RBI doesn’t want to burn forex reserves
India’s forex reserves are strong but not unlimited. If RBI aggressively defends the rupee:
- Reserves fall fast
- Markets panic
- Rating agencies get nervous
Example lesson (globally):
- Sri Lanka, Pakistan, Argentina tried hard defense and failed badly
So, RBI prefers: controlled depreciation and not sudden collapse or artificial strength
Weak rupee is not 100% bad for India
This is uncomfortable but true. A weaker rupee:
- Helps exports (IT, pharma, textiles)
- Brings more rupees for each dollar
- Supports GDP growth during global slowdown
RBI’s correct and current mindset is: “Let the rupee absorb global shocks instead of hurting growth.”
Global factors > RBI power right now
RBI cannot fight the US Federal Reserve and currently the big global pressures are:
- Strong US dollar
- High US interest rates
- Capital moving back to US
- Geopolitical uncertainty
When dollars become expensive globally, almost all currencies fall, not just INR.
Inflation control is RBI’s real priority
RBI’s main legal mandate is Price stability (inflation), not exchange rate so if RBI:
- Raises rates too much to save rupee it would lead to
loans becoming expensive, growth slowing and, jobs suffering.
So, to maintain the balance between – inflation, growth and currency stability it is important to not take big and loud steps. Because – Currency is one part, not the whole game
Hence, Central banks are judged not by how loudly they act, but by how well they preserve stability.
