3 min readMay 19, 2026 06:00 AM IST
First published on: May 19, 2026 at 06:00 AM IST
The Indian currency continues to be under pressure. On Monday, the rupee was hovering around 96.3 against the dollar — since the beginning of this year, it has fallen by around 6.5 per cent. According to a report in this paper, some policymakers view this fall as the market pricing in the depreciation that may have occurred before 2025, a time when the central bank’s interventions increased sharply, leading to an “artificial stabilisation” of the rupee. While market interventions designed to keep the currency at a particular level may delay the adjustments required to fix underlying imbalances in the economy, the problems with the rupee run deeper.
The currency’s weakness comes at a time when the Indian economy has been growing at a relatively healthy pace, with both inflation and the current account deficit being low. The rupee has also fallen against the dollar when the greenback has itself weakened — in 2025, the rupee fell by 4.7 per cent against the dollar when the dollar index fell from 109 to 98. The problems have been due to pressure on both the capital and current accounts. Capital has been flowing out of the country, with both foreign and domestic investors exploring alternatives. Investors seem more exuberant about the prospects of East Asian economies which are benefiting from the China+1 play and the AI boom. And on the current account side, the steep rise in global crude oil prices is exerting pressure, financing which will be challenging.
In response, there have been appeals to curb foreign travel and gold purchases in order to conserve forex, with the RBI also intervening in the markets to stem the rupee’s slide. Its net short forward position had widened considerably, and it had earlier also restricted activity in the non-deliverable forwards market. The relief to the currency from the central bank’s steps was, however, short-lived. But the temptation to intervene in the currency markets through various instruments, when the rupee is facing both depreciation and appreciation pressures, is not new. The central bank has in the past repeatedly intervened in the markets. The approach should, however, be to allow the currency to move freely. The rupee should work as a shock absorber. At the current juncture, the focus should be on addressing the pain points in the economy. Steps need to be taken to attract foreign capital, raise domestic competitiveness and boost merchandise exports. The structural impediments to growth need to be tackled urgently.
