New Delhi: The Reserve Bank of India is considering every option at its disposal to prevent the rupee from sliding further, Bloomberg reported, as the currency brushed against a fresh record low of nearly 97 to the dollar this week. Governor Sanjay Malhotra and other top central bank officials have held multiple rounds of internal meetings to evaluate available tools and the speed at which they could be put into action, according to Bloomberg.
One of the options on the table is a potential interest rate hike, Bloomberg reported citing one of the people. The monetary policy committee’s next scheduled meeting runs from June 3 to 5, though the RBI has shown willingness to act between scheduled meetings in the past, most recently in May 2022.
What measures is the RBI weighing
According to Bloomberg, the central bank is also considering a dollar deposit scheme for non-resident Indians and a sovereign dollar bond issuance, with the latter being a call that would need to be made by the government. The RBI believes the NRI deposit scheme could pull in as much as $50 billion, a crucial jump from the approximately $30 billion mobilised through a similar scheme during the 2013 taper tantrum. In a separate move on Wednesday, the RBI announced a $5 billion swap auction to inject liquidity into the banking system and bolster its dollar reserves, according to Bloomberg’s sources.
Why is the RBI acting with urgency
Bloomberg reported that there is a growing recognition within the RBI that the rupee’s fall is outpacing what policymakers had expected. Officials are said to believe that India’s underlying economic strength and a sound banking system are not being adequately reflected in the exchange rate. “The top priority for the central bank now is to stop the depreciation, and the RBI is ready to do whatever it takes to achieve that,” one of the people told Bloomberg.
Foreign outflows and narrowing rate differential
A rate hike, if implemented, would help widen the interest rate differential between India and the United States, a gap that has shrunk to its narrowest in over a decade, potentially drawing foreign bond investors back into Indian markets. Equity outflows from India in 2026 have already surpassed last year’s record of $19 billion, Bloomberg noted. The RBI’s benchmark rate currently stands at 5.25%, and most economists now expect a hike in the coming months as inflationary pressures build.
