Will RBI Step In to Control Rupee Fluctuations?
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Synopsis
The Indian rupee is facing significant pressure, dipping below 88 against the US dollar amidst tariff issues and FII outflows. With a robust forex reserve, the RBI might intervene to stabilize the currency. The situation could impact GDP growth and inflation, raising questions about future rate cuts.
Key Takeaways
- The Indian rupee has fallen below the 88 mark against the US dollar.
- The RBI may consider intervention to stabilize currency volatility.
- India's forex reserves stand at approximately $703 billion.
- Short-term pressures include US tariffs and FII outflows.
- GDP growth for FY26 may slow to around 6 percent.
New Delhi, Sep 24 (NationPress) As the Indian rupee dipped below the 88 mark against the US dollar amid concerns over tariffs and outflows from foreign institutional investors, the Reserve Bank of India is poised to step in to address heightened volatility, according to a report released on Wednesday.
CareEdge Ratings has upheld its FY26-end USD/INR prediction at 85–87, bolstered by a weakening dollar, a robust yuan, India’s manageable current account deficit, and the potential for a US–India trade agreement.
“India’s forex reserves are strong at approximately $703 billion, close to an all-time high, allowing the RBI the flexibility to intervene in the currency market if necessary,” the ratings agency noted.
Experts have pointed out that short-term pressure on the rupee is likely to persist due to US tariffs, increased H-1B visa fees, and ongoing outflows from foreign portfolio investors.
CareEdge Ratings mentioned that the rise in FPI selling this year might stem from worries about the 50% tariffs staying intact, which could hinder India’s FY26 growth, projecting it at around 6 percent.
Gross FDI inflows reached about $25.2 billion in Q1 FY26, while net FDI fell to around $4.9 billion because of heightened outward investments by Indian companies.
The dollar index has declined by roughly 10 percent year-to-date, affected by uncertainties in US trade policy and fiscal issues, alongside expectations of additional rate cuts from the Federal Reserve after a reduction in September.
The yuan has appreciated by about 2.5 percent year-to-date, removing a competitive pressure on the rupee that was evident during the initial trade war in 2018-19.
“Domestically, we do not anticipate an RBI rate cut in the upcoming October MPC meeting. However, should high US tariffs linger, FY26 GDP growth may decelerate to around 6 percent. This, combined with potential downward pressure on inflation from GST rationalization, may open up possibilities for further rate cuts later, likely by another 25 bps,” the report stated.
As the US Fed is projected to implement rate cuts more aggressively than the RBI, the interest rate gap may widen in favor of the rupee, providing some support, it added.
Point of View
It's critical to recognize the intricacies of currency fluctuations and their broad implications on our economy. The potential intervention by the RBI highlights proactive measures to ensure economic stability, reflecting the importance of strategic oversight in managing financial challenges. Our commitment remains focused on delivering comprehensive insights that resonate with the public's interests and concerns.
NationPress
24/09/2025
Frequently Asked Questions
Why is the Indian rupee falling?
The Indian rupee is falling due to tariff concerns and foreign institutional investor outflows, which have created significant pressure on the currency.
What is the current forex reserve of India?
India's forex reserves are approximately $703 billion, near an all-time high, providing the RBI with the ability to intervene in the currency market.
What impact could US tariffs have on India's economy?
High US tariffs could lead to slowed GDP growth for India, potentially reducing it to around 6 percent for FY26.
Will the RBI cut interest rates?
While a rate cut is not expected in the upcoming October MPC meeting, if high US tariffs persist, there could be room for further cuts later.
How does the dollar index affect the rupee?
A weakening dollar index can provide some support to the rupee, as it reflects the overall strength of the US currency in relation to others.
