RBI Steps In as USD/INR Reverses Sharp Decline from Record Highs

The Indian Rupee staged a notable recovery against the US Dollar on Wednesday morning, with the USD/INR pair retreating over 1% to approach the 90.00 level from its recent peak of 91.56. Reserve Bank of India officials moved decisively to support the domestic currency, deploying intervention tactics across both the spot and Non-deliverable Forward (NDF) markets. According to market sources, state-run financial institutions were observed aggressively offering US dollars—actions consistent with RBI guidance to stabilize exchange rates.

This intervention underscores the central bank’s determination to arrest the Rupee’s weakness. The domestic currency has underperformed peers across Asia, declining roughly 6.45% year-to-date and marking the region’s worst-performing major currency. The selling pressure reflects structural headwinds: sustained outflows from foreign investors seeking exposure elsewhere, combined with heightened demand for US dollars from Indian importers navigating the ongoing trade uncertainties between India and the United States. Through November, Foreign Institutional Investors have turned net sellers in seven of the year’s first eleven months, offloading Indian equities worth Rs. 23,455.75 crore in December alone.

Monetary Policy Signals Support Currency Stabilization

RBI Governor Sanjay Malhotra has indicated in recent remarks to the Financial Times that interest rates will “remain low for a longer period,” signaling the central bank’s commitment to supporting growth even as external pressures mount. The Governor also highlighted surprise in recent Gross Domestic Product figures, prompting the RBI to refine its forecasting models. He projected potential economic impacts of approximately 0.5 million dollars in rupees equivalent terms from any eventual US-India trade normalization, though this remains contingent on negotiations progressing. Such support for the Rupee through accommodative policy reflects the RBI’s balancing act between domestic growth objectives and currency stability.

US Dollar Stabilizes Despite Weaker Economic Backdrop

While the Rupee recovered Wednesday morning, the US Dollar itself showed resilience across broader currency markets. The US Dollar Index (DXY), which measures the currency’s performance against six major peers, gained 0.17% to trade near 98.40, reversing Tuesday’s slide toward eight-week lows near 98.00. This recovery occurred despite a softer economic backdrop that might have otherwise pressured the currency. October and November employment data revealed the unemployment rate rising to 4.6%—its highest level since September 2021—with the economy losing a combined net 41,000 positions across the two-month period. Retail sales expanded flatly month-on-month, falling short of the anticipated 0.1% gain, while preliminary activity surveys showed moderating momentum, with the Composite PMI landing at 53.0 versus 54.2 the prior month.

Market participants attribute the Dollar’s stability partly to the distortionary effects of the recent US government shutdown, which many believe skewed labor market figures and tempered initial dovish interpretation. Fed futures pricing reflects this skepticism toward near-term rate cuts, with December’s CME FedWatch tool showing minimal probability of a January 2026 rate reduction. Focus now turns to the Consumer Price Index report due Thursday, which should clarify whether inflation remains a constraint on policy flexibility.

Technical Setup: Rupee Buyers Face Critical Levels

On the daily timeframe, USD/INR trades at 90.5370, maintaining position above the ascending 20-day Exponential Moving Average (EMA) now centered at 90.1278. The Relative Strength Index registers 59.23, comfortably above the 50 midline, confirming sustained positive momentum after pulling back from recent overbought extremes above 70. This technical configuration preserves the upside bias so long as the pair defends its EMA cushion. The immediate support cluster spans 89.9556–89.8364, encompassing the 20-EMA foundation. A daily close beneath this zone would shift focus toward range consolidation rather than directional extension, whereas sustained bids above would keep the door open for further advances.

What Moves the Indian Rupee?

The Rupee remains acutely sensitive to crosscurrents in global commodity and capital flows. Oil prices matter profoundly since India imports the majority of its crude requirements; US Dollar valuation shapes all cross-border settlement mechanics; and foreign investment appetite directly influences demand for rupee assets. Beyond market forces, RBI intervention provides a policy stabilizer—the central bank actively manages exchange rates to facilitate commerce and maintain inflation near its 4% target through interest rate adjustments. Higher rates typically bolster the currency via the carry trade mechanism, as yield differentials attract international capital seeking superior returns. Conversely, macroeconomic deterioration—slower GDP growth, wider trade deficits, capital outflows, or elevated inflation exceeding peer countries—typically depresses the Rupee as these conditions signal economic weakness and reduce demand for rupee-denominated investments.