Rupee Surges 65 Paise to 90.38 Per Dollar in Biggest Single-Day Gain After Aggressive RBI Intervention
In a dramatic reversal of its recent downward trajectory, the Indian rupee staged its strongest single-session recovery in two months on Wednesday, closing at 90.38 against the US dollar—up 65 paise from Tuesday's close of 91.03. The sharp rebound followed aggressive intervention by the Reserve Bank of India (RBI), which moved decisively to arrest the currency's prolonged slide and counter one-sided bearish expectations in the foreign exchange market.
Intraday Movement and Market Dynamics
The rupee demonstrated remarkable strength throughout Wednesday's trading session, appreciating as much as 1% during the day and touching an intraday high of 90.08 per dollar. This marked the currency's most significant single-session gain in approximately two months, offering relief to market participants who had watched the rupee repeatedly breach new record lows in recent weeks.
The sharp recovery represents a partial reversal of the sustained depreciation pressure that had pushed the rupee to successive all-time lows, including touching 90.79 per dollar earlier this week. Market sentiment had turned increasingly bearish on the currency amid persistent foreign institutional investor outflows and uncertainty surrounding US-India trade negotiations.
RBI's Strategic Intervention
Market participants attributed Wednesday's rupee strength directly to aggressive dollar sales by the Reserve Bank of India in the spot foreign exchange market. The central bank's intervention appeared designed to counter the overwhelming one-sided expectations of continued rupee weakness that had dominated market positioning in recent sessions.
Prior Preparation: The $5 Billion Dollar-Buy Swap
Dealers noted that the RBI had earlier conducted a $5 billion dollar-buy swap operation, which traders believe may have strategically positioned the central bank for Wednesday's spot market intervention. Such swap operations allow the RBI to build dollar reserves while simultaneously managing rupee liquidity in the banking system.
The timing and execution of Wednesday's intervention reflected the RBI's characteristic approach of using surprise to maximize the psychological and practical impact of its market operations. By intervening forcefully when market sentiment had turned overwhelmingly negative, the central bank was able to catch many traders off-guard and force a reassessment of positions.
Growing Speculation Preceding Intervention
Market participants revealed that speculation about imminent RBI action had been building in recent sessions as the rupee's sustained slide intensified. The currency's repeated breaches of psychological resistance levels and the accelerating pace of depreciation had led many market watchers to anticipate central bank intervention, though the exact timing remained uncertain.
The RBI's decision to act decisively on Wednesday appears to have been triggered by the combination of deteriorating market sentiment, excessive speculative positioning against the rupee, and concerns about self-reinforcing depreciation dynamics that could have destabilized broader financial conditions.
SBI Report: Limited Trade Balance Impact from Depreciation
A comprehensive report by the State Bank of India (SBI) released recently provided crucial context for understanding the rupee's challenges and the limited effectiveness of currency depreciation in improving India's trade position.
Export Growth Offset by Import Costs
Despite India's goods exports registering robust 19.4% growth in November 2025, the SBI report's empirical analysis revealed that the benefits of increased export volumes have been substantially offset by rising import costs. This finding challenges the conventional assumption that currency depreciation automatically improves trade competitiveness and the current account balance.
The report emphasized that while a weaker rupee makes Indian exports more price-competitive in international markets, it simultaneously increases the rupee cost of imports—particularly crude oil, which remains India's largest import category. This dual effect has limited the net improvement in India's trade balance despite significant currency depreciation.
Unprecedented Dollar Demand in Merchant Segment
The SBI report highlighted that the rupee's rapid decline has triggered unprecedented demand for US dollars in the merchant segment—the market where businesses conduct foreign exchange transactions for trade and investment purposes.
Key findings include:
- Combined excess dollar demand reached $145 billion in the merchant segment
- This extraordinary demand reflected both genuine trade-related requirements and precautionary hedging by businesses concerned about further rupee depreciation
- The imbalance between dollar demand and supply created severe pressure on the rupee exchange rate
- Corporate treasurers rushed to secure dollar forward cover, amplifying near-term dollar demand
Scale of RBI Intervention: $30 Billion Deployed
The SBI report provided estimates of the substantial scale of RBI intervention in currency markets over recent months. According to the analysis, the central bank deployed approximately $30 billion in forex market operations between June and October 2025 to manage rupee volatility and prevent disorderly depreciation.
This massive intervention contributed to a significant decline in India's foreign exchange reserves:
- Reserves peaked at $703 billion in June 2025
- By early December 2025, reserves had declined to $687.2 billion
- The drawdown of approximately $16 billion reflects the cost of managing currency stability amid intense depreciation pressure
- Despite the decline, India's reserves remain substantial and provide continued capacity for intervention
Future Outlook: Two Scenarios
The SBI report outlined two potential scenarios for the rupee's trajectory over the coming months, reflecting the significant uncertainty in currency markets:
Scenario 1: Continued Depreciation
Under the first scenario, the rupee could continue its downward path toward 92.5 per dollar by mid-2026. This outcome would likely result from:
- Persistent foreign institutional investor outflows
- Continued strength in the US dollar index
- Delays or unfavorable outcomes in US-India trade negotiations
- Rising crude oil prices increasing import bills
- Broader emerging market currency weakness
Scenario 2: Strong Rebound
Alternatively, the report anticipates the possibility of a strong rebound in the second half of the next fiscal year (FY 2026-27), with the rupee potentially appreciating by approximately 6.5% to average around 87 per dollar. This recovery scenario could be driven by:
- Successful conclusion of a favorable US-India trade agreement
- Resumption of strong foreign institutional investor inflows
- Improvement in India's current account balance
- Weakness in the US dollar index amid Federal Reserve rate cuts
- Stronger-than-expected domestic economic growth attracting capital inflows
Market Implications and Trading Strategy
Wednesday's sharp rupee recovery demonstrates several important lessons for market participants:
Central Bank Credibility
The RBI's intervention reinforced its credibility and willingness to act decisively when currency movements become excessive or disorderly. This credibility itself can help moderate speculative positioning and reduce volatility.
Dangers of One-Sided Positioning
The violent reversal caught many traders with heavily short rupee positions off-guard, highlighting the risks of excessive one-directional bets when the central bank retains substantial intervention capacity.
Importance of Fundamentals
While short-term interventions can reverse speculative momentum, the rupee's medium-term direction will ultimately be determined by fundamental factors including trade flows, foreign investment, interest rate differentials, and global risk sentiment.
Corporate and Investment Implications
For businesses and investors, the rupee's trajectory carries significant implications:
Importers
Wednesday's rupee strength provided temporary relief on import costs, though companies should maintain hedging strategies given ongoing uncertainty. The potential scenarios ranging from 87 to 92.5 per dollar suggest substantial two-way risk.
Exporters
IT services companies and other exporters saw dollar revenues translate into fewer rupees on Wednesday, though the longer-term competitive benefits of a weaker currency may still support export growth.
Foreign Investors
The RBI's demonstrated willingness and capacity to intervene may provide some confidence to foreign investors concerned about unchecked currency depreciation eroding investment returns.
Policy Considerations
The rupee's volatility and the massive scale of required intervention raise important policy questions:
- Forex Reserve Management: How much of India's reserves should be deployed to manage currency volatility versus maintaining a buffer for crisis situations?
- Structural Reforms: What policy measures can reduce India's structural dollar demand and improve the current account balance?
- Capital Flow Management: Should India implement measures to stabilize foreign investment flows and reduce their volatility?
- Trade Policy: How can successful trade negotiations reduce uncertainty and support currency stability?
Looking Ahead
Wednesday's rupee recovery represents a significant but likely temporary respite in the currency's challenging journey. While the RBI's intervention demonstrated its capacity and willingness to counter excessive depreciation, the fundamental factors driving dollar demand—including trade deficits, foreign investment flows, and global risk sentiment—remain in flux.
Market participants will closely monitor several key developments in coming weeks:
- Progress on US-India trade negotiations
- Foreign institutional investor flow patterns
- Crude oil price movements and their impact on import bills
- US Federal Reserve policy decisions affecting dollar strength
- RBI's ongoing approach to currency management
The wide divergence between the two scenarios outlined in the SBI report—ranging from 87 to 92.5 per dollar—underscores the exceptional uncertainty facing currency markets. Businesses and investors should maintain flexible strategies and appropriate hedging to navigate this volatile environment while remaining attentive to both technical market dynamics and evolving fundamental factors.
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