The Reserve Bank of India is currently deliberating on measures to combat the persistent decline of the rupee against the US dollar. The rupee recently dropped to an unprecedented low, hitting 91.7425 against the dollar, largely due to significant outflows from Indian equities and an increased demand for gold imports.
What measures is the RBI implementing to stabilize the rupee? The central bank has been prudently utilizing foreign exchange swaps. For instance, in January 2026, it engaged in over $2 billion worth of FX swaps, aimed at increasing rupee liquidity in a banking system experiencing tight conditions. This intervention followed a substantial action in December 2025, where a $5 billion USD/INR buy-sell swap auction was announced, intended to enhance the dollar supply in the marketplace without adversely affecting India’s foreign exchange reserves.
However, the December auction did not fully alleviate market concerns. Upon announcement, the rupee declined by an additional 13 paise, trading at 89.98 against the dollar.
Examining the reasons behind the rupee's steady decline reveals two primary factors. Foreign portfolio investors have been withdrawing investments from Indian equities, which places downward pressure on the rupee as these investors convert their returns back into dollars. Moreover, India’s rising thirst for gold imports plays a significant role. As one of the largest global consumers of gold, the nation’s demand for bullion—purchased in dollars—exacerbates the need for dollar liquidity, further pressuring the rupee.
For investors, it is noteworthy that the RBI’s intervention strategies have escalated. From injecting $3 billion in swaps in early 2025, it increased to $5 billion by year-end, followed by another $2 billion in January 2026. Each intervention cycle has been larger than the last, reflecting the increasing urgency of stabilizing the currency and ensuring market confidence.