India considers all options—including raising interest rates—to counter the sharp rupee depreciation.

The Reserve Bank of India (RBI) is under severe pressure from the rupee’s rapid depreciation and has placed a range of unconventional measures—including interest rate hikes and overseas financing—on the table. This has triggered heightened market attention toward a potential shift in India’s monetary policy. According to Bloomberg, RBI Governor Sanjay Malhotra and other senior officials have recently held intensive internal meetings to discuss response options. This week, the rupee plunged to a record low of nearly 97 per U.S. dollar—the immediate catalyst for this emergency consultation. One option under consideration is taking action ahead of the scheduled monetary policy meeting on June 5, including the possibility of an early interest rate hike; the RBI previously made an off-cycle policy adjustment in May 2022. Following the news, markets reacted visibly: the rupee rose as much as 0.5% on Thursday to 96.38 per dollar, while the yield on 10-year government bonds fell by 3 basis points to 7.05%—having earlier dropped by 6 basis points following the RBI’s announcement of liquidity injection, before partially reversing those gains. Depreciation speed exceeds expectations; policymakers adopt a firmer stance Sources familiar with the RBI’s decision-making process indicate that an increasingly strong consensus is forming within the policymaking circle: the pace of rupee depreciation has outstripped expectations. Officials maintain that India’s economic fundamentals remain sound and its banking system functions normally—but this robustness has not been reflected in the exchange rate. One insider stated bluntly: “The central bank’s top priority right now is halting the depreciation—and the RBI stands ready to do whatever it takes to achieve this goal.” So far this year, foreign investors’ selling pressure on Indian assets has intensified continuously. Net outflows from foreign funds in the Indian stock market have already surpassed last year’s record high of $19 billion. Meanwhile, the interest rate differential between India and the U.S. has narrowed to its lowest level in over a decade, diminishing the appeal of Indian bonds to foreign investors.

Economic slowdown and resurgent inflation! The RBI did not cut rates—but reduced the cash reserve ratio by 50 basis points.

Amid dual pressures of slowing economic growth and rising inflation, the Reserve Bank of India (RBI) today announced it would hold its benchmark policy rate steady at 6.5% to address persistent inflation risks, while cutting the Cash Reserve Ratio (CRR) by 50 basis points to 4% to boost liquidity in the economy. This decision aligns with economists’ expectations, as recent CPI data show India’s October inflation rate climbed to 6.21%—a 14-month high—well above the RBI’s 4% target and beyond the upper bound of its target range. At the same time, excess liquidity in the banking system has diminished due to the RBI’s foreign exchange interventions, and analysts expect further tightening of liquidity ahead of mid-December tax payments. Moreover, signs of economic deceleration in India have become increasingly evident: GDP growth in the third quarter slowed to just 5.4%, significantly below the expected 6.5% and marking the weakest performance in nearly two years. In fact, the RBI has maintained interest rate stability since February last year. However, as the extent of India’s economic slowdown has exceeded expectations, the central bank’s responsibilities have grown heavier. RBI Governor Shaktikanta Das stated that the domestic economic slowdown had already “bottomed out” in the third quarter. The central bank revised downward its GDP growth forecast for fiscal year 2025, lowering its projection from 7.2% in October to 6.6%, and raised its inflation forecast from 4.5% to 4.8%.

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India’s RBI Governor Says Premature to Discuss Rate Hike

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