RBI UNDER THE SCANNER

• HOWEVER, THE RBI'S STATED POLICY, REITERATED BY NEW GOVERNOR SANJAY MALHOTRA, IS THAT IT DOES NOT TARGET A SPECIFIC RATE

• THE RBI SOLD A SPECULATED $70 BILLION IN DECEMBER 2024 TO DEFEND THE RUPEE WHEN IT CAME UNDER INTENSE PRESSURE

• THE CENTRAL BANK HAS SAID IT INTERVENED TO ENSURE THAT MOVEMENT IS ORDERLY AND THERE'S NO EXCESSIVE VOLATILITY

• SOME OBSERVERS HAVE SAID THAT THE RBI'S DOLLAR SALES LED TO A TIGHTENING IN LIQUIDITY CONDITIONS IN INDIA

• BUT CONSIDERING THE UNCERTAINTY SPARKED BY US PRESIDENT DONALD TRUMP'S POLICY, THE RUPEE IS EXPECTED TO FEEL PRESSURE

THE RECENT DEPRECIATION of the rupee has sparked a debate on the relative merits and drawbacks of the fall in value vis-à-vis the US dollar. The recent volatility has been sparked by US President Donald Trump’s tariff policies that have increased uncertainty around the world and have led to a fall in the value of many currencies, not just the rupee.

Consider this: the rupee fell by 57 paise to 86.62 on January 28, 2025—the steepest decline in nearly two years—from just February 10 to 13, the rupee quoted between 86.50 and 88.

In this period, some have questioned the Reserve Bank of India’s (RBI’s) handling of the situation, raising concerns about its decision to sell dollars to shore up the currency. The debate has also included top ministers in the Prime Minister Narendra Modi-led National Democratic Alliance government.

“Depreciation is a bad thing. We believe that in the long run, we must focus on a stronger currency because we are still an import-dependent country,” Union Commerce and Industry Minister Piyush Goyal said at the India Today Business Today Budget Round Table 2025.