RBI's rupee playbook: Curb excess volatility

IN THE PAST month, the Reserve Bank of India's (RBI) intervention in the foreign exchange market to protect the rupee from going into a free fall is being seen by experts as an attempt to manage excess volatility spurred by speculative action, instead of being target-based.

- KSHIPRA PETKAR

After a whopping 5% drop in 2025, the first week of the current year has seen the rupee fall by another 0.17%.However, the currency has been more range bound rather than hitting new closing lows on a daily basis, as it happened earlier.

On Thursday, the rupee remained volatile, swinging widely in intraday trade before ending weak against the dollar. The domestic currency opened weak at 89.96, down from its previous close of 89.89, but recovered to an intraday high of 89.74, gaining nearly 15 paise after the RBI intervened. However, there was another wave of outflows leading to the rupee closing at 90.03, down 14 paise or 0.16%.

Sakshi Gupta, principal economist at HDFC Bank, said the RBI's intervention strategy has long involved curbing excess volatility and acting when intervention is most effective, often by taking markets by surprise.

"RBI's intervention must also be viewed in the context of managing expectations and confidence and to prevent a run in terms of capital flows or the rupee - basically acting to signal stability in a highly uncertain global environment," Gupta said.