How Far Will the RBI Go to Defend the Rupee? The $80 Billion Question | Indian Express Special

The Reserve Bank of India (RBI) is aggressively intervening to stabilize the rupee, which has faced significant downward pressure amid a persistent trade deficit and global economic volatility. To combat this, the central bank has implemented a multi-pronged strategy: raising the policy repo rate to 5.5%, introducing a 20% Foreign Exchange Risk Reserve (FERR) on large derivative contracts to curb speculation, and directly supplying dollars to public sector oil companies to bypass the open market. While these measures aim to reduce volatility, they impose substantial costs on legitimate businesses by increasing hedging expenses and limiting liquidity. Despite deploying an estimated $75 to $80 billion in reserves, the RBI faces structural challenges, including fluctuating oil prices and shifting foreign investor sentiment, leaving the currency’s long-term stability dependent on factors beyond the central bank's direct control.