Rupee is under pressure, RBI needs to let it be

On Monday, the rupee briefly breached the 95 mark against the dollar. While the currency recovered — on Wednesday, it hovered around 93.5 — it has weakened considerably in the recent past. Over the course of 2025-26, the rupee has fallen by around 9.6 per cent against the dollar. In March alone, it fell by over 4 per cent. Since the beginning of the Iran war, other Asian economies such as Thailand and South Korea have also seen a decline in their currencies.

The pressure on the rupee is coming from both the current and capital account. The country’s dependence on energy imports implies that higher prices — India’s crude basket averaged $113.5 per barrel in March — exert pressure on the external front. A $10 increase in crude prices could push up the current account deficit by 30-40 basis points, as per CareEdge ratings. Merchandise exports to West Asia — for instance, in 2024-25, India’s exports to the UAE stood at $36.6 billion — will also be hit if the conflict continues. On the other hand, foreign portfolio investors have taken out a staggering $13.6 billion in March alone from the country. FDI flows have also slumped — net FDI stood at $1.6 billion during April-January 2025-26.

Overall Analysis

The editorial examines the recent depreciation of the Indian rupee and argues that the Reserve Bank of India (RBI) should avoid excessive intervention, allowing the currency to adjust naturally to external pressures. It begins with a factual, data-driven introduction, highlighting how the rupee has weakened significantly — even breaching the 95 mark against the dollar before recovering slightly. By comparing India with other Asian economies like Thailand and South Korea, the editorial contextualizes the issue as part of a broader regional trend rather than an isolated domestic problem.

The second paragraph moves into analytical depth, identifying the twin sources of pressure — the current account and the capital account. The language here is technical and economic, reflecting a policy-oriented discussion. On the current account side, India’s dependence on imported energy is emphasized, with rising crude oil prices (linked to the Iran conflict) worsening the trade balance. The mention of India’s exports to the United Arab Emirates illustrates how geopolitical tensions can disrupt trade flows.

On the capital account side, the editorial highlights significant outflows of foreign portfolio investment and weak foreign direct investment inflows. Phrases like “staggering $13.6 billion” underscore the scale of capital flight, adding urgency to the situation. The structure of the argument is logical — moving from symptoms (currency depreciation) to causes (external imbalances and capital flows).

Implicit in the argument is the idea that such depreciation is largely driven by external, structural factors rather than domestic mismanagement. Therefore, the RBI should not overreact by aggressively defending the rupee, as doing so may distort market signals or deplete foreign exchange reserves. The editorial’s language remains measured and analytical, avoiding alarmism while clearly signaling concern.

Overall, the piece combines economic reasoning with policy advice, advocating a calibrated, hands-off approach by the central bank in the face of global volatility.

Important Vocabulary (5)

1. Breached – crossed a particular limit or level.
2. Depreciation – a decrease in the value of a currency.
3. Current Account Deficit – when a country imports more goods, services, and capital than it exports.
4. Portfolio Investors – investors who invest in financial assets like stocks and bonds, often short-term.
5. Slumped – declined sharply or suddenly.

Conclusion & Tone

The editorial argues that the rupee’s fall is largely due to global and structural factors, and excessive intervention by the RBI may not be effective. Instead, a more flexible approach allowing market-driven adjustment is advisable.

Tone: Analytical, cautious, and policy-oriented.