Why is the rupee sliding toward 97 and what is RBI doing about it?

Added: 2026-05-27

[00:00:00]Because protecting the currency sometime becomes more important than stimulating growth. Hi there.

[00:00:06]Off late, I'm sure you've been reading in the news about how the rupee is sliding towards the 97 mark against the dollar.

[00:00:13]And you're probably getting nervous.

[00:00:16]You're not alone because once a currency starts weakening too quickly, it could become a dangerous self-reinforcing cycle. And that's exactly what the RBI is trying to prevent here.

[00:00:26]RBI has many options in its monetary policy toolkit including a much more aggressive defense strategy like possible rate hikes, special dollar raising schemes through NRI deposits.

[00:00:36]Though I must say this that RBI historically has avoided using interest rates as a primary tool to shore up the rupee apart from a brief 2013 increase in the marginal standing facility rates.

[00:00:46]Uh however, intuitively you may ask this question, why would the RBI think about it raising interest rates when growth is already slowing?

[00:00:54]Because protecting the currency sometime becomes more important than stimulating growth in the short term.

[00:00:59]Let me explain this further.

[00:01:01]Let's take an example. If US interest rates remain high while Indian rates stay relatively lower, global capital can start moving out of India towards safer dollar assets. And that creates pressure on the rupee.

[00:01:15]And a weaker rupee creates another problem.

[00:01:17]India imports a massive amount of crude oil and energy. So when the rupee weakens, imports become more expensive.

[00:01:25]And that increases inflation inside the country. And inflation itself can weaken investor confidence even further.

[00:01:32]Now you can see the cycle, right? You have a weak rupee, expensive imports, higher inflation, and more pressure on the rupee.

[00:01:40]So by potentially raising rates and attracting fresh dollar inflows from NRIs, the RBI is trying to draw a line in the sand before markets panic further.

[00:01:50]Because once the psychological levels like 100 per dollar enter the conversation, market behavior itself can become destabilizing.

[00:01:59]So, the important thing to understand is this.

[00:02:02]Central banking is often about managing confidence as much as managing economics.

[00:02:07]Because sometimes stopping panic becomes more important than chasing growth.

[00:02:12]Thank you and see you soon.