MUMBAI – The Reserve Bank of India (RBI) has launched its most aggressive effort in over a decade to protect the rupee, though early signs suggest the currency remains under heavy pressure. On Friday, the central bank announced a strict $100 million daily limit on the currency positions lenders can hold, a move designed to curb speculation and stabilize the market.
While the rupee initially jumped 1.4% when markets opened on Monday, those gains quickly evaporated. By mid-morning, the currency was up only 0.3%, as high demand for U.S. dollars from oil importers offset the central bank’s intervention.
Banks Face Multi-Billion Dollar Losses
The new regulations have sparked significant pushback from the banking sector. Lenders warned that being forced to suddenly unwind positions totaling an estimated $30 billion could lead to massive financial hits. Analysts suggest that every one-rupee fluctuation against the dollar could cost the banking industry between ₹3,000 crore and ₹4,000 crore.
In response to the news, shares of major lenders like State Bank of India and HDFC Bank fell more than 2%. The broader banking index has now slid 15% this month alone.
Impact of the Middle East Conflict
The rupee’s struggle is tied closely to the ongoing conflict in the Middle East, which has kept oil prices well above $110 per barrel. Because India imports the vast majority of its energy, these high costs are draining the country’s foreign-exchange reserves and driving up the national import bill by an estimated $5 billion every month.
The rupee recently weakened past the significant 94-per-dollar mark, making it the worst-performing currency in Asia this year.
A Difficult Road Ahead
Market experts remain cautious about whether the RBI’s tactics will work in the long run. While the limits may offer temporary relief, many believe the pressure on the rupee will continue as long as global oil prices remain elevated. Some analysts have warned that if current trends persist, the currency could eventually reach a value of 100 per dollar.
The economic uncertainty has also led to a massive exodus of foreign capital, with global investors pulling approximately $12 billion out of Indian stocks this month.
