RBI to continue efforts to curb rupee volatility; external factors driving currency fall: Nirmala Sitharaman

Rupee volatility is the speed and size of changes in the rupee’s exchange value. High volatility makes planning harder for importers, exporters, investors and households. Reducing it means limiting disorderly or excessive swings while allowing market forces to determine the rupee’s broader level. Fixing the rupee would mean holding it at a chosen rate, which the Finance Minister said is not the RBI’s aim.

The article gives a clear example. The RBI created a special window for oil marketing companies, shifting some U.S. dollar demand away from the spot market. It also tightened rules for foreign-exchange derivatives to curb speculative bets against the rupee. These steps can reduce sudden pressure without declaring a permanent rupee-dollar rate.

The rupee appreciated 1% on Monday after the measures and reached ₹94.96 in early trade on Tuesday. Sitharaman said the RBI would continue supporting stability, while allowing the rupee to find its own level. That approach seeks a smoother market, not a fixed price.

The article does not specify the rupee’s exact percentage or amount of decline over the past one and a half years. It says the depreciation has been “very significant” and that the rupee reached a low against the U.S. dollar. The stated cause is mainly global uncertainty and pressure linked to movements in the dollar.

Its recent movement was more positive. After the RBI announced several measures over the weekend, the rupee appreciated 1% on Monday, October 12, 2026. On Tuesday, October 13, it appreciated further to ₹94.96 against the dollar in early trade.

These figures show a short-term recovery, not a reversal of the longer decline. Sitharaman said RBI action would continue to prevent excessive volatility rather than establish a fixed exchange rate. The rupee’s eventual level would still be shaped by market conditions, while the central bank tries to limit disorderly swings.

Currencies are priced in a global market, so outside events can move them even when a country’s own finances are sound. During uncertainty, investors and companies may seek the U.S. dollar, increasing demand for it relative to the rupee. A stronger dollar against many currencies can therefore weaken the rupee-dollar exchange rate. Global trade, energy prices, interest-rate expectations and geopolitical risks can also affect these flows.

The article describes India’s macro-economic fundamentals and foreign-exchange reserves as strong. It also says fiscal discipline is not expected to worry investors. Yet Sitharaman identifies external challenges and the rupee’s reaction to dollar movements as the central difficulty.

This means reserves and sound fundamentals act as protection, not an absolute barrier. They give the RBI capacity to manage disorderly conditions and reassure investors. The government and RBI have also sought dollar inflows through securities access, tax measures and FCNR(B) deposits. Still, the rupee may continue to move as global conditions change.

The RBI’s measures target two sources of pressure on the rupee. First, a special window for oil marketing companies takes some of their U.S. dollar demand away from the spot market. This can reduce concentrated buying pressure when oil companies need dollars for payments. Second, tighter rules for foreign-exchange derivatives aim to curb speculative bets against the rupee.

The mechanism is mainly about market flows. If large dollar purchases are handled through a separate facility, they need not all compete for dollars in the spot market at once. If speculative derivative positions are restricted, fewer trades may amplify expectations of a falling rupee. The article says these measures supported a 1% appreciation on Monday.

Sitharaman stressed that the RBI is trying to prevent excessive volatility, not “fix” the rupee. The central bank’s actions are therefore intended to make trading more orderly while allowing the currency to find its own level. The measures will continue as global pressure evolves.

When the rupee loses value against the dollar, Indian buyers need more rupees to purchase the same dollar-priced import. Importers may then pay more for fuel, machinery, components, medicines or other goods. Businesses can face higher costs, while consumers may see those costs passed through in prices. A weaker currency can therefore add to inflation and reduce household purchasing power.

For example, an oil company paying suppliers in dollars would need more rupees after depreciation, unless dollar prices fell or the company had protection against currency movements. Companies that borrow or pay invoices in dollars can also face larger rupee obligations. Exporters may receive more rupees for dollar earnings, but their imported inputs can become costlier.

The supplied article does not provide measured effects on Indian imports, inflation, businesses or consumers. It focuses on volatility, global pressure and RBI action. In general, those consequences are why policymakers seek orderly currency movements, while accepting that the rupee must respond to market forces.

Attracting dollars can reduce pressure on the rupee by increasing foreign-currency availability in India. When more dollars enter through investments or deposits, buyers needing dollars may face less scarcity in the market. This can moderate sudden upward pressure on the dollar and support more orderly rupee trading, although it cannot guarantee a particular exchange rate.

The government expanded the Fully Accessible Route to include new government-security issuances and exempted certain FPI income from interest and capital gains in G-Secs. The RBI also let banks use a swap facility for three-to-five-year FCNR(B) deposits. Banks could swap these dollar deposits with the RBI and manage currency risks. These steps make dollar investment or mobilisation easier.

The response was substantial: banks mobilised $133 billion under the FCNR(B) scheme by August 31, after strong participation from the Indian diaspora. The article also reports investment in renewable energy, semiconductors, pharmaceuticals and aircraft MRO. Such inflows can strengthen external support while global uncertainty continues.

A market-based exchange rate is determined mainly by buyers and sellers of currencies. Demand for rupees rises when people invest in India, buy Indian goods or expect the rupee to strengthen. Demand for dollars rises when India pays for imports, investors move money abroad or global uncertainty increases. The exchange rate changes until the market balances these competing pressures.

The article illustrates this process. Global uncertainties and movements in the dollar weakened the rupee despite India’s sound fundamentals and foreign-exchange reserves. Meanwhile, dollar inflows from foreign investment, government securities and FCNR(B) deposits can add supply to the Indian market. Oil companies’ dollar demand can also affect short-term pressure.

The RBI can influence volatility through market measures, special facilities and derivatives rules. But Sitharaman said it is not trying to “fix” the rupee. In practice, the currency can find its own level while policymakers seek to prevent abrupt or excessive movements. The precise rate therefore changes with domestic and global conditions.