Sell $100 million every minute: Inside India’s Rupee defense

Core Viewpoint - The Reserve Bank of India (RBI) is employing a complex and unpredictable intervention strategy to manage the depreciation of the rupee, which has reached all-time lows against the dollar, while balancing the need to avoid excessive market volatility and liquidity drain [1][3][4]. Intervention Strategy - RBI's intervention orders vary in focus, sometimes targeting specific amounts like selling $100 million per minute, while other times instructing traders to sell until a market level is reached or to refrain from trading altogether [1][2]. - The decision-making process for interventions occurs daily at RBI's headquarters, involving a Financial Markets Committee that assesses market pressures before the market opens [7]. - Once a decision is made, senior dealers at state-run banks execute the orders from soundproof rooms, ensuring confidentiality and unpredictability in the intervention process [8][9]. Market Conditions - The rupee has depreciated by 4.9% against the dollar in 2025, making it one of the worst-performing currencies among major economies, despite a general decline in the dollar's strength [4][5]. - Contributing factors to the rupee's weakness include a widening trade deficit, high US tariffs on Indian goods, and foreign capital outflows [5]. Historical Context - The RBI has a history of intervening in currency markets, particularly following crises such as the 1991 balance of payments crisis and the 2013 taper tantrum, which have shaped its current approach to managing the rupee [11][12]. - The RBI's foreign reserves stood at $686 billion as of November 28, 2023, providing a buffer against currency volatility [12]. Recent Developments - Recent interventions have led to a reduction of foreign currency assets by approximately $38 billion since June 2023, impacting liquidity in the banking system [17]. - The RBI has shown a willingness to tolerate some depreciation of the rupee, with net sales of foreign currency averaging $1.2 billion per week in late November 2023, compared to $3.5 billion in the preceding weeks [18]. - RBI Governor Sanjay Malhotra has emphasized the goal of reducing excessive volatility rather than targeting specific price levels for the rupee [19]. Future Outlook - The RBI may be holding back on stronger interventions in anticipation of potential trade agreements with the US, which could alleviate some pressure on the rupee [20][21]. - The rupee's depreciation past the key level of 90 raises concerns about market perceptions and the ongoing challenge for the RBI to maintain stability while allowing for necessary adjustments [22].