RBI's Dollar Dilemma: Navigating Rupee Volatility

In December, the RBI net sold USD 10.02 billion due to rupee volatility driven by geopolitical tensions and US tariffs. Persistent trade deficits and capital outflows further stressed the rupee, which reached a historic low. Interventions stabilized it, aided by the India-US trade deal.

The Reserve Bank of India (RBI) aggressively intervened in the forex market in December, net selling USD 10.02 billion as the Indian rupee grappled with heightened volatility. This marks the seventh straight month of dollar sales by the central bank as it battled to anchor the currency amidst growing economic uncertainties.

The rupee was under considerable pressure for most of 2025 and into early 2026, impacted by erratic foreign portfolio flows, persistent trade deficits, and capital outflows. Despite substantial dollar infusions by the RBI, the rupee plummeted to an unprecedented low of 92 against the US dollar before gradually recovering.

The turning point was achieved following announcements of an interim trade deal between India and the US, as well as a free trade agreement with the EU. These developments buoyed investor confidence and revitalized foreign investments, setting the stage for a rupee recovery.

(With inputs from agencies.)