Rupee Faces Pressure Amid Global Tensions: RBI's Response

The Indian rupee is facing unprecedented volatility due to the ongoing Iran War, leading to significant declines against the US dollar. The Reserve Bank of India is prepared to intervene to stabilize the currency, leveraging its substantial foreign exchange reserves. Governor Sanjay Malhotra emphasizes the importance of maintaining orderly price discovery in the forex market. As geopolitical tensions continue, the rupee's recovery remains uncertain. Financial experts suggest that while the RBI may implement measures to curb currency outflows, aggressive use of reserves may not be as common as before. This situation highlights the intricate relationship between global events and local economies.

By Narendra Chaudhary May 25, 2026, 11:31 IST

Rupee Volatility and RBI's Stance

The foreign exchange market in India has experienced significant fluctuations recently, particularly following the outbreak of the Iran War. The Indian rupee has hit record lows, influenced by rising global bond yields and a decrease in risk appetite among investors. Although the rupee's ongoing decline against the US dollar may seem like a macroeconomic issue, it profoundly affects the daily lives of citizens.

To address the weakening currency, Sanjay Malhotra, the Governor of the Reserve Bank of India (RBI), stated that the central bank is ready to take necessary actions to maintain stability in the foreign exchange market amidst the ongoing volatility caused by the conflict in West Asia. In an interview, he emphasized, “The RBI will take all necessary steps to ensure orderly price discovery in the forex market. We have adequate resources, including approximately $700 billion in foreign exchange reserves, to mitigate excessive speculative movements.”

Governor Malhotra clarified that while the RBI does not aim for a specific rupee value, it will intervene if speculative pressures escalate. He noted that the recent depreciation might suggest that the rupee is undervalued in both nominal and real effective exchange rate terms. He also indicated that the rupee could rebound once geopolitical tensions subside.

Since the Iran War began on February 28, India's foreign exchange reserves have decreased by nearly $38 billion, falling from a peak of $728.5 billion in February to around $691 billion. Ajay Khandelwal, a Fund Manager at Motilal Oswal Asset Management Company, commented on the RBI's potential interventions in the forex market, suggesting that while additional measures may be introduced to limit FX outflows, such as tightening ODI routes or expanding currency swap mechanisms, the aggressive use of FX reserves may not be as prevalent as in the past.