Former RBI Governor Duvvuri Subbarao has called for the Reserve Bank of India to reduce its currency intervention efforts, arguing that the central bank should allow the rupee to weaken to send correct price signals amid rising import costs and foreign fund outflows. Speaking in an interview, Subbarao, who headed the RBI from 2008 to 2013, stated that "On a broader level, I believe the RBI should be less interventionist than it tends to be." He emphasized that if India wants to be a developed economy, market players must learn to manage two-way movement of the rupee. This comes after the RBI recently imposed sweeping curbs on rupee trading by banks to arrest a slide to record lows, though these aggressive measures provided only brief relief.
The rupee experienced significant volatility on Friday with conflicting closing rates from different sources. According to The Hindu BusinessLine, the CCIL website showed an incorrect closing rate of 93.51 against the US dollar, registering a sharp gain of 71 paise. However, other interbank foreign exchanges, such as Finrex and Mecklai, showed a closing figure of 94.48 against the greenback. A CCIL official explained that the error appeared after a deal between two banks fell through late in the evening and was not incorporated in the closing value of the local unit. With the updated Friday figures, the rupee was trading 72 paise lower at 95.20 during mid-day trade on Monday, highlighting the ongoing volatility in currency markets.
The Indian rupee has experienced a significant decline against most global currencies over the past year, with its steepest fall not against the US dollar. According to The Economic Times, data shows the rupee has fallen the most against the Australian dollar, sliding more than 25% since May last year. The Chinese yuan and the Euro follow close behind in terms of decline, while the rupee has shown relative resilience against the Japanese yen. This broad-based weakness represents a far bigger trend than the traditional focus on US dollar movements. The rupee has weakened about 5% this year versus the dollar, ranking as Asia's worst performer amid the Iran war-driven oil spike. The Australian dollar followed a similar path, remaining firm against the US dollar while AUD/INR reflected rupee weakness and Australian dollar strength versus the dollar.
The Middle East conflict has pushed crude oil prices above $125 a barrel at one stage, reigniting fears over India's inflation-growth balance due to heavy dependence on energy imports. As reported by The Economic Times, April alone saw FII outflows of $7.5 billion, taking year-to-date outflows beyond $20 billion. Brent crude has surged from around $72 a barrel in February to nearly $110 now, creating a double squeeze on the rupee through both trade deficit and capital account pressures. According to Anindya Banerjee, Head Of Commodity and Currency Research at Kotak Securities, the monthly oil import burden has jumped by roughly $7–8 billion from a baseline of $10–11 billion. The currency has borne the brunt of India's reliance on expensive fuel imports, making it vulnerable to energy shocks. Elevated crude prices effectively act as an inflationary tax on the economy, raising logistics and operating costs across sectors while widening the fiscal deficit through subsidy and excise pressures.
After the recent fall toward Rs 95.33 against the dollar, the rupee is likely to remain highly volatile and heavily news-driven in the near term, according to Ponmudi R, CEO of Enrich Money. As reported by The Economic Times, if oil prices cool and global risk sentiment improves, the rupee could stabilize in the 93–94 range. However, if geopolitical tensions escalate further or crude spikes sharply again, the possibility of testing the 96–97 zone cannot be ruled out. At this stage, the rupee is not facing a structural crisis but is clearly under intense cyclical pressure from external macroeconomic forces. Subbarao emphasized that raising interest rates — the "ultimate" exchange rate defense — should be the last resort, as markets could read it as a sign the conflict poses a bigger threat to India's economy than previously thought. He noted that "RBI cannot also raise rates out of concerns for growth at a time when several other factors are already militating against growth."
