{"id":76797,"date":"2025-12-07T11:10:31","date_gmt":"2025-12-07T05:40:31","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=76797"},"modified":"2025-12-08T16:22:40","modified_gmt":"2025-12-08T10:52:40","slug":"rbi-shifts-currency-management","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rbi-shifts-currency-management\/","title":{"rendered":"Rupee Falls to 90 as RBI Shifts Currency Management"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Currency Management Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee fell past the Rs. 90 per U.S. dollar mark on December 3, 2025, prompting debates on whether the sharp depreciation reflects a market meltdown or a deliberate policy shift by the Reserve Bank of India (RBI).<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Market Forces Driving the Rupee\u2019s Decline<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li>The rupee\u2019s movement is shaped by a combination of external shocks and domestic economic behaviour.\u00a0<\/li>\n<li><span style=\"font-weight: 400;\">Three major market developments have intensified pressure on the currency:<\/span><\/li>\n<li aria-level=\"1\"><b>Tariff-Induced Export Slowdown<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">The 50% tariff imposed by the U.S., India\u2019s largest export destination, has made Indian goods significantly more expensive.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Exports to the U.S. fell 12% in September and 9% in October 2025, dragging overall monthly exports down by nearly 12% year-on-year.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The fall in demand meant exporters earned fewer dollars, contributing to a dollar scarcity and pushing the rupee lower.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">A 0.5% increase in cumulative exports from April to October 2025, showing that exporters partly compensated through other global markets.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Nevertheless, forward-looking indicators such as the Manufacturing PMI and new export orders sub-index are at their lowest in months, suggesting deeper export stress in the coming period.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Surge in Gold and Silver Imports<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\">Gold imports surged by 200% to $14.7 billion, and silver imports jumped 528% to $2.7 billion in October.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Although festive demand plays some role, economists call this a \u201cflight to safety\u201d, a reaction to domestic financial volatility.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">To buy bullion, domestic players sold rupees to purchase dollars, adding to exchange market pressure and worsening the trade balance.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">This import surge became a major driver of the rupee\u2019s depreciation.<\/span><\/li>\n<\/ul>\n<\/li>\n<li aria-level=\"1\"><b>Record Foreign Portfolio Investor (FPI) Outflows<\/b>\n<ul>\n<li><span style=\"font-weight: 400;\"><strong><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/foreign-portfolio-investment-fpi\/\" target=\"_blank\">FPIs<\/a><\/strong> have withdrawn $17 billion from Indian equity markets in 2025, the largest outflow in two decades.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">When FPIs exit, they sell rupees and buy dollars, accelerating the rupee\u2019s fall.\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">The scale of outflows is comparable to global distress years such as 2008 and 2022.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Understanding RBI\u2019s Strategic Shift<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While market factors exert pressure, the rupee\u2019s actual value also depends heavily on the central bank\u2019s intervention stance.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From Aggressive Defence to Limited Intervention<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Between 2022 and 2024, the RBI sold enormous amounts of foreign reserves, over $30 billion in Q3 2022 and $38 billion in Q4 2024, to prevent sharp depreciation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">However, in 2025, despite comparably adverse conditions, RBI sold only $10.9 billion in Q3. This signals a pivot away from protecting a fixed exchange rate.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Economists call this a managed float strategy: the RBI is no longer fixing the rupee at a particular level but smoothing volatility while allowing depreciation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>RBI\u2019s Calculated Bet on a Weaker Rupee<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">RBI appears to be betting that a gradually weaker rupee can act as an economic shock absorber:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It could make Indian exports more competitive,<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Partly offset tariff losses, and<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Prevent excessive reserve depletion.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts support the strategy if executed slowly. Gradual depreciation allows firms time to renegotiate contracts and adjust supply chains. A sudden 15% fall would be disruptive.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, they also offer a caution: a weaker nominal rupee does not automatically translate into a competitive real exchange rate, especially if domestic inflation is high.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Historically, India saw nominal depreciation without export gains post-COVID because domestic costs rose faster. Weak U.S. demand may blunt any benefit from the rupee\u2019s fall.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>A Balancing Act Between Risks and Resilience<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The rupee\u2019s slide reflects a mixture of global shocks, domestic behaviour shifts, and a strategic central bank recalibration.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">While India faces near-term risks, such as rising import bills, volatility in investor sentiment, and uncertain export recovery, the deliberate moderation of forex interventions indicates confidence in the currency\u2019s ability to seek a stable market level over time.<\/span><\/li>\n<li style=\"font-weight: 400; text-align: justify;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The coming months will test whether the RBI\u2019s approach can stabilise macroeconomic pressures without triggering financial instability.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/www.pressreader.com\/india\/the-hindu-kolkata-9WW9\/20251207\/282037628481444\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The rupee\u2019s drop beyond \u20b990 per dollar on Dec 3, 2025, has triggered discussions on market stability and the possibility of a strategic RBI policy shift.<\/p>\n","protected":false},"author":21,"featured_media":76918,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[4076,60,22,59],"class_list":{"0":"post-76797","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-currency-management","9":"tag-mains-articles","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/76797","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/21"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=76797"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/76797\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/76918"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=76797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=76797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=76797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}