Top officials at the RBI, including Governor Sanjay Malhotra, have held a series of internal meetings to discuss the possible course of actions available after the rupee plunged to a fresh low of almost 97 to a dollar this week, the people said, asking not to be identified because the discussions are private.
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One of the options on the table is raising interest rates, one of the people said. The next scheduled monetary policy decision is on June 5, although the RBI has previously made an out-of-cycle adjustment in May 2022.
Other measures include raising dollars overseas through a deposit scheme for non-resident Indians and selling a sovereign dollar bond, another person said. The latter would be decided by the government, the person said.
Bloomberg
The measures under consideration mirror some of those taken during the 2013 taper tantrum period. India provided a deposit scheme for non-residents through local banks at the time to spur foreign currency inflows. The RBI estimates the deposit schemes could draw as much as $50 billion this time around, according to one of the people, compared with about $30 billion previously.
There is an increasing recognition among policymakers that the rupee is tumbling faster than anticipated, according to the people, who are familiar with the RBI’s thinking. Policymakers are of the opinion that India’s economic fundamentals remain strong and the banking system is sound, but that strength is not being reflected in the exchange rate, they said.
The RBI didn’t respond to an email seeking further information.
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The top priority for the central bank now is to stop the depreciation, and the RBI is ready to do whatever it takes to achieve that, one of the people said.
Raising borrowing costs would help spur foreign bond inflows by widening the interest rate differential between the US and India, which has narrowed to over a decade low. Investors have dumped Indian assets this year, with foreign fund outflows from stocks so far in 2026 surpassing last year’s record $19 billion.
The RBI’s six-member monetary policy committee is scheduled to meet June 3-5. The committee has kept its benchmark rate unchanged at 5.25% this year, although most economists predict a hike in coming months as inflation accelerates.
On Wednesday, the RBI announced a $5 billion swap auction to infuse liquidity in the banking system and also boost the RBI’s dollar reserves in the immediate term. There could be more of such swap auctions, people familiar with the matter said.