The banking regulator – Reserve Bank of India – has said that it is keeping a close watch on movements of the rupee, and will take appropriate steps, as warranted. The regulator has acknowledged in its monetary policy statement that the local currency has ‘witnessed some depreciation accompanied by phases of volatility’.
Indian currency touched a low of 88.80 on Tuesday ahead of the RBI’s rate cut policy. On Wednesday morning, rupee gained 13 paise to trade around 88.70 against the dollar.
In its monetary policy report, the RBI said the Indian Rupee exhibited two-way movements against the US dollar during April–September 2025, but with an overall depreciating bias. “It exhibited a depreciating bias from mid-July onwards, moving within a range of ₹85.8-₹88.76,” noted the RBI.
According to it, the depreciation, particularly in the latter half of H1 (June-September), was attributed to portfolio outflows, escalation in US-India trade tensions and increased US tariff rates on Indian exports, a widening trade deficit and narrowing interest rate differentials.
Outlook
RBI’s monetary policy report notes that going forward, volatility in global financial markets due to slowing global trade and demand, growing investor risk aversion toward EMEs, and the strengthening of the US dollar may continue to put downward pressure on the currency.
It also identifies higher international crude oil prices due to geopolitical tensions as a risk that could contribute to the weakening of the INR.
However, it feels that India’s strong macroeconomic fundamentals and growth prospects will continue to provide underlying support to the currency.
For the purpose of its baseline economic projections, the RBI has revised its assumption for the exchange rate to ₹88 per US dollar for the second half of 2025-26, up from ₹86 earlier. The report clarifies that this is a technical assumption and does not represent a target or a desired band.