The Reserve Bank of India has reaffirmed that its foreign exchange policy remains unchanged despite significant rupee volatility since the West Asia war began on February 28. According to Mint, RBI Governor Sanjay Malhotra emphasized on Wednesday that intervention in the foreign exchange market is aimed at smoothing excessive and disruptive volatility without targeting any specific level or price band for the exchange rate. The central bank's stance aligns with its longstanding policy of exchange rates being market determined, with Malhotra stating that the RBI stands committed to this approach and would judiciously continue to contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals.
The Indian rupee traded at ₹92.52 against the US dollar at 10:35 am on Wednesday, showing some recovery after recent volatility. As reported by Mint, the currency has fallen 4.5% against the dollar since the war in West Asia began on February 28, and 11% in FY26, hitting an all-time low of ₹95.1250 per dollar on March 30. The rupee has demonstrated resilience following the central bank's April 1 announcement of comprehensive measures to curb speculation, with the currency appreciating over the past few days after the regulatory interventions. The RBI's intervention measures have helped stabilize the currency from its previous lows, though volatility remains a concern for policymakers.
The RBI has implemented comprehensive measures to curb speculation following the currency's significant decline, with the latest announcement on April 1 introducing stricter norms. According to Mint, the central bank targeted the rebooking of cancelled forex derivative contracts and tightened norms for related-party transactions. Under the new rules, if a company or trader cancels a dollar hedge, they can no longer re-enter the same trade to benefit from price movements, limiting their ability to take directional bets under the guise of hedging. Separately, banks have been barred from undertaking foreign exchange derivative contracts with related parties as defined under the Indian Accounting Standard (Ind AS) 2. On March 27, the RBI also mandated that the net open positions of banks in the domestic market must be capped at $100 million at the end of each business day by April 10.
Crude oil prices remain volatile, with India's dependence on imported crude at nearly 88% of its requirement making it particularly sensitive to geopolitical disruptions. As reported by The Economic Times, if crude oil averages around $100 per barrel, India's GDP growth could moderate to about 6.3%, while inflation may climb above 5%. However, in a prolonged disruption scenario with oil at $150 per barrel, growth could slow sharply to 5.5%, while inflation may breach the RBI's upper tolerance band of 6%. The current account deficit could widen significantly if oil prices remain elevated, potentially reaching more than $100 billion.
Looking ahead, Jain outlined two possible paths depending on how the geopolitical situation evolves. If the crisis is short-lived and oil stabilizes around $95–100 per barrel, GDP growth could settle at around 6.3%, with inflation rising moderately. However, in a prolonged disruption scenario with oil at $150 per barrel, growth could slow sharply to 5.5%. The government has already taken steps to cushion the impact, including a ₹10 per litre cut in fuel prices, but Jain cautioned there are limits to how much can be absorbed. She emphasized that it is always fiscal policy which should do the heavy lifting more than the monetary policy in such scenarios, arguing that rate hikes may not be effective against supply-driven inflation.
