India’s central bank, the Reserve Bank of India (RBI), is intensifying interventions to manage the depreciating rupee, which has hit record lows against the dollar.
India’s central bank issues its confidential directives to specialized rupee traders within secure, soundproof environments.
On some occasions, the focus is on volume: sell $100 million at one-minute intervals. At other times, it centers on specific exchange rates: sell until a designated level is achieved. And on certain days, the order is merely to refrain from action.
This elusive intervention tactic forms a core element of the Reserve Bank of India’s (RBI) escalating efforts to oversee the rupee amid its slide to unprecedented lows.
Based on discussions with bankers, traders, and ex-central bank officials—many of whom spoke anonymously about the RBI’s tightly controlled intervention mechanisms—the outlook points to sustained high volatility. Trading sessions are expected to feature abrupt fluctuations as the RBI enters and exits the market unpredictably, said a Bloomberg report.
RBI Governor Sanjay Malhotra is striving to address speculation in the persistently depreciating currency without resorting to the aggressive interventions characteristic of his predecessor’s tenure. Striking this equilibrium is challenging. Insufficient action could amplify one-sided bets, exacerbating the decline. Excessive intervention, however, might deplete banking system liquidity—potentially hindering economic expansion—and erode critical foreign exchange reserves.
“Malhotra appears committed to a ‘leaning against the wind’ strategy,” noted Eswar Prasad, previously the head of the IMF’s China division and now an economics professor at Cornell University. “This involves not outright opposing market forces driving the currency in a specific direction, but intervening selectively to mitigate short-term exchange rate volatility and prevent overshooting.”
New Leadership and Policy Shifts
Sanjay Malhotra, during an RBI press conference in Mumbai in February 2025, announced the first interest rate cut in nearly five years.
The pressures are intensifying. In 2025, the rupee has depreciated by 4.9% against the US dollar, placing it behind only the Turkish lira and the Argentine peso in terms of losses among 31 major currencies. This downturn occurs even as a measure of the dollar’s global strength has declined by over 7% during the same period.
Contributing factors include an expanding trade deficit, the imposition of 50% US tariffs on Indian exports, and capital outflows from foreign investors. The absence of a finalized trade agreement with Washington has further intensified the strain on the currency.
Historically, the RBI has been reticent about its currency market operations, but in recent years, officials have become more forthcoming in acknowledging such interventions. Governor Malhotra has repeatedly emphasized the role of interventions in controlling volatility. An RBI spokesperson did not respond to a request for comment.
The Rupee’s Record Lows
India’s rupee has reached all-time lows against the dollar, with the lack of a US trade deal adding to the downward pressure. (Source: Bloomberg)
The Daily Decision-Making Process
Intervention decisions commence each morning prior to market opening at the RBI’s headquarters in south Mumbai. There, the Financial Markets Committee—comprising representatives from various departments—convenes to evaluate exchange rate pressures.
If circumstances demand, they reconvene multiple times throughout the day, as described by a former central bank official. The governor ultimately approves any actions.
Upon approval, instructions are typically conveyed to senior dealers at major state-owned banks, who operate from dedicated desks designed exclusively for executing RBI directives. These desks are situated in isolated rooms with independent, non-recorded communication lines.
The RBI provides no advance notice to these dealers and does not disclose the extent of the order book. To enhance unpredictability, the central bank occasionally eschews round numbers, such as halting sales after an irregular amount like $217 million. Strategies may shift rapidly if officials suspect traders have discerned a pattern.
Banks involved in these operations, which may encompass private sector institutions, are barred from maintaining proprietary trading positions during interventions. They are permitted only to settle existing positions and handle client transactions.
A signal from a senior dealer—such as raising a hand—indicates to colleagues that all other activities must cease. The RBI compensates with a fee that scarcely offsets operational expenses.
Historical Context and Reserve Building
Interventions have been a longstanding component of India’s monetary framework, shaped by past traumas associated with rupee depreciation.
In 1991, a balance-of-payments crisis compelled the government to pledge gold reserves to finance imports amid depleted foreign reserves. In 2013, during the “taper tantrum” triggered by the US Federal Reserve’s announcement of quantitative easing reductions, the rupee suffered significant losses.
These episodes motivated successive RBI governors to amass substantial foreign reserves, which totaled $686 billion as of November 28, 2025—including approximately $557 billion in currency assets and $106 billion in gold. This ranks among the world’s largest stockpiles, sufficient to cover about 11 months of imports.
“India has endured periods of sharp currency depreciation when reserves were lower,” reflected R. Gurumurthy, a former RBI official who managed the currency desk. He refrained from detailing operational specifics. “The evolution toward more substantial interventions aligns with the expansion of reserves, fostering greater market confidence.”
Under Malhotra’s predecessor, Shaktikanta Das, efforts to suppress rupee volatility led the IMF in December 2023 to reclassify India’s effective exchange rate regime from “floating” to “stabilized.” This classification indicated a closely managed float and elicited objections from the RBI.
Malhotra, holding a master’s in public policy from Princeton University and assuming leadership a year ago, has adopted a more varied intervention style. This adjustment prompted the IMF last month to revise its assessment of India’s currency management to “crawl-like,” acknowledging increased allowance for two-way movements.
Such unpredictability also serves to deter market speculation, according to G. Mahalingam, a former RBI executive director who oversaw the financial markets department.
“There will indeed be speculators, but they enter the market wary of potential severe losses because predicting the RBI’s actions is difficult,” Mahalingam explained, without elaborating on intervention methods.
Domestic and International Operations
Given the rupee’s partial convertibility due to capital controls, RBI interventions span both the local market and offshore venues.
Internationally, the rupee trades primarily via non-deliverable forwards (NDFs)—derivative contracts that fix exchange rates and settle in dollars. The RBI conducts these through the Bank for International Settlements, partnering with select major banks in 24-hour markets across Singapore, Dubai, and London.
Repeated interventions in 2025 have reduced foreign currency assets by about $38 billion from June’s peak through November 28, while also withdrawing liquidity from the banking system. On Friday, Malhotra announced plans to purchase bonds and execute a foreign-exchange swap to infuse the equivalent of $16 billion in liquidity.
The RBI has moderated its pace, net selling an average of $1.2 billion in spot foreign currency reserves weekly over the four weeks ending November 21—down from $3.5 billion in the prior four weeks, per estimates from Nomura Holdings Inc.
“Our policy has consistently been not to target specific levels or ranges; we permit the market to set the price,” Malhotra stated at a Friday press briefing following the central bank’s first benchmark interest rate cut in six months. “Our focus remains on curbing excessive or abnormal volatility, and we will persist in that effort.”
Constraints and Future Considerations
Further interventions may be limited by the RBI’s expanded dollar sales in its forward positions, committing to future deliveries. As of October, the net short dollar book stood at around $64 billion, necessitating sourcing dollars upon maturity.
Officials might also be conserving resources for potential escalated responses.
“I believe the RBI has established thresholds where they would intervene aggressively,” observed Jamal Mecklai, managing director of Mecklai Financial Services Pvt. and a veteran of India’s currency markets for over four decades. “They face constraints from liquidity and reserve considerations.”
Relief could emerge if India’s negotiations with the US yield results. A delegation from the Trump administration, headed by Deputy US Trade Representative Rick Switzer, is scheduled to visit India this week to advance trade agreement discussions.
