The Reserve Bank of India intervenes to stabilize the market; the rupee posts its largest single-day gain in over a month.

On Monday, the Reserve Bank of India (RBI) conducted large-scale intervention in the foreign exchange market. Combined with falling global oil prices and positive remarks from the central bank’s governor, this drove the rupee to its largest single-day gain in over a month. According to informed traders, the RBI aggressively sold U.S. dollars in the domestic currency market on Monday, with the scale of intervention being substantial. As a result, the rupee appreciated as much as 0.8% against the dollar to 95.7838—the strongest one-day rise since June 15. Meanwhile, RBI Governor Sanjay Malhotra, in an interview with The Hindu BusinessLine, stated that the central bank’s recent initiatives to attract foreign capital have elicited a strong market response: banks have mobilized a total of $32 billion through channels such as foreign-currency deposits. These remarks further boosted market sentiment and accelerated the rupee’s rebound. The rupee remains under pressure for the month, ranking among the worst-performing currencies in Asia.

What is the long-term impact of the Reserve Bank of India’s foreign exchange market intervention on the rupee’s exchange rate?

This marks the strongest administrative intervention by the RBI in the foreign exchange domain in over a decade. Its logic is straightforward: forcibly compress short positions to trigger a short squeeze, thereby pushing up the exchange rate in the short term. The market responded immediately—short sellers were forced to cover their positions, causing the rupee to surge sharply at the open. Yet this ‘masterstroke’ lasted only a few hours. Once the initial wave of covering subsided, the importers’—especially oil importers’—inflexible demand for dollars reasserted itself as the dominant market force. The rupee quickly retreated to its prior level and even briefly breached the previously uncharted threshold of 95 rupees per dollar. It ultimately closed at 94.81—nearly unchanged from last Friday’s close. The script rewritten by administrative fiat held for just half a day. To understand what happened on March 30, we must step back further in time. Since tensions escalated in the Middle East, global oil prices have surged continuously, with Brent crude trading well above $110 per barrel—far exceeding the RBI’s benchmark of $70. As the world’s third-largest crude importer, India has virtually no buffer. According to Bloomberg Economics estimates, at $100 per barrel, India’s monthly oil import bill rises by approximately $5 billion. Beyond high oil prices, global risk-aversion sentiment has intensified. The Middle East conflict has prompted international investors to reassess risks, viewing emerging markets—including India—as high-risk zones, accelerating capital outflows. In March, foreign investors sold Indian bonds at a record pace, with net sales totaling $1.61 billion; since late February, net foreign sales of Indian equities reached $12.14 billion—the largest monthly outflow on record. On one side, soaring import costs; on the other, accelerating capital flight. Under this dual pressure, the rupee entered a sustained and severe depreciation phase. The data tell an unambiguous story: by end-March, the rupee had depreciated over 4% against the dollar year-to-date, and nearly 10% since the start of the current fiscal year. Its 4.04% depreciation in March marked its worst monthly performance since the onset of the COVID-19 pandemic in 2020—and the steepest decline among major Asian currencies. While the yen, won, and baht also weakened, none fell as sharply as the rupee. Even more concerning for markets is that this is not a short-term fluctuation but a persistent trend—almost every trading day sees the rupee hitting new all-time lows. Faced with the rupee’s sustained depreciation, the RBI initially adopted the most conventional approach: deploying foreign exchange reserves to intervene directly in the market. The logic was simple: sell dollars and buy rupees to artificially generate demand for the rupee and prop up the exchange rate…

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