India’s financial markets entered October with pressure on the rupee. Traders watched the exchange rate slide steadily as rising crude oil imports, global risk aversion, and foreign capital outflows hit demand for dollars. The rupee’s decline triggered debates about the Reserve Bank of India’s approach. The central bank chose a strategy of selective intervention instead of defending a hard currency level. This choice reflects a shift in how India balances growth, inflation, and financial stability in 2025.
Rupee Shows a Persistent Slide
The rupee started the week trading close to ₹84.90 per U.S. dollar. By October 3, it moved toward the ₹85.20 level, unsettling importers and foreign investors. Dealers reported strong demand for dollars from energy firms and electronics importers. Rising global oil prices added to the pressure. Foreign institutional investors also reduced exposure to Indian bonds, creating additional outflows.
Market participants said the fall did not surprise them. The rupee has struggled since August as U.S. treasury yields rose and the dollar index strengthened. The weakness gathered pace in September, and the RBI had to decide whether to step in aggressively or manage volatility in a limited way.
Import Bills Push the Currency Down
India imports more than 80% of its crude oil needs. Brent crude crossed $92 per barrel last week, driving up import bills. Oil marketing companies bought dollars heavily, weakening the rupee further. Electronics and machinery imports also jumped, partly due to pre-festive demand. When importers rush for dollars, the local currency feels the heat.
Exporters did not balance this out. IT companies and textile exporters booked fewer contracts in September, according to trade sources. That limited the supply of dollars in the market.
Foreign Outflows Add Pressure
Foreign institutional investors (FIIs) trimmed their holdings in Indian government bonds. Rising U.S. yields made American debt more attractive, and some investors shifted portfolios back to safer assets. Equity markets also saw net outflows during the last week of September. The selling added to dollar demand and pushed the rupee lower.
The outflows reflect caution about global risk. Traders cited concerns over tariffs in the U.S. and slower growth in Europe. When investors move out of riskier emerging markets, currencies like the rupee suffer first.
RBI’s Calculated Intervention
The RBI holds more than $650 billion in foreign exchange reserves. In earlier phases of currency stress, the central bank defended the rupee with large interventions. This time, it avoided a fixed target. Instead, officials sold dollars only at selected points to slow volatility.
Traders said the RBI appeared at the ₹85 level, smoothing intraday swings. It did not stop the rupee from breaching the mark but ensured no disorderly spikes. By adopting this strategy, the RBI showed that it wants to conserve reserves and let the rupee adjust gradually.
Officials also used state-run banks to execute some trades quietly. This tactic allowed them to calm the market without signaling panic.
Stock Market Impact
Equity investors tracked the currency closely. A weaker rupee benefits exporters like IT and pharma firms, but it raises costs for import-dependent industries. On October 3, IT stocks rose modestly, while aviation and auto stocks dipped. The Nifty IT index gained 0.8%, but the Nifty Auto index fell 0.6%.
Domestic investors absorbed some selling by FIIs. Mutual funds and retail traders continued to buy mid-caps, keeping the market resilient. However, analysts warned that sustained rupee weakness could feed into inflation and hurt consumption demand.
Bond Market Feels the Heat
Government bond yields rose as the rupee slid. The 10-year benchmark yield climbed to 7.28%, reflecting fears of higher imported inflation. Traders expect the RBI to stay cautious on rate cuts if the currency stays weak. Rising yields also make it tougher for companies to borrow cheaply.
Global Currency Moves
The rupee’s weakness does not stand alone. The Chinese yuan and Indonesian rupiah also fell against the dollar. Emerging market currencies suffered as the U.S. economy showed resilience. Strong American data boosted the dollar index above 108, its highest in months.
Compared to peers, the rupee held relatively better because of RBI support. The Turkish lira and Argentine peso saw sharper drops. Analysts said India’s large reserves and strong domestic demand shielded the rupee from a steeper fall.
Traders Expect More Intervention
Forex dealers believe the RBI will not let the rupee fall sharply below ₹85.50 in the near term. Many said the central bank has drawn an informal comfort zone. As long as oil prices stay near $90 and FII outflows remain moderate, the RBI can manage. But if crude spikes above $100 or outflows accelerate, the rupee could test new lows.
Exporters and Importers Adjust
Exporters welcomed the slide, as it improves rupee earnings from overseas contracts. IT companies may post stronger revenue growth if the trend continues. Importers, especially in aviation and energy, face higher costs. Airlines may hike fares to offset the impact, while fuel companies pass some burden to consumers.
Analysts’ Take
Economists see the RBI’s stance as pragmatic. Madhavi Arora of Emkay Global said the central bank wants “orderly depreciation, not a one-way defense.” She argued that defending an exact level drains reserves without changing fundamentals.
Sonal Varma of Nomura added that gradual depreciation helps keep exports competitive. She expects the rupee to stay in the 84.50-85.50 range for the next quarter.
Outlook for the Rupee
The rupee’s path depends on three drivers: crude oil, U.S. bond yields, and foreign capital flows. If crude eases below $85 per barrel, the pressure could ease. A slowdown in U.S. yields may also bring FIIs back. On the other hand, geopolitical shocks or rising global inflation could keep the rupee under strain.
The RBI seems ready to strike a balance. By stepping in when volatility spikes but avoiding a rigid defense, it can protect reserves and allow natural adjustment. The rupee may remain under pressure, but India’s large reserves and domestic investor base reduce the risk of a crisis.
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