New Delhi, April 3: The depreciation of the Indian rupee since February 27 is, in fact, in line with other currencies, and better than currencies that appreciated significantly in the earlier period (April 2, 2025 to February 27, 2026), according to SBI Research, indicating that in an uncertain world, pushing the limits on rupee depreciation as a shock absorber does not hold beyond a certain point.
Interestingly, the Indian rupee depreciated by 6.4 per cent between April 2, 2025 and February 27, 2026. At the same time, the dollar index also depreciated by 6 per cent during the same period.
According to the report, this was the time when most currencies were appreciating against the dollar, but not the rupee, which may have led to an overestimation of the rupee's role as a shock absorber.
While the RBI's attempt to rationalize the open position for banks is useful, it likely created a significant divergence between the onshore and offshore markets.
Indian banks (both PSBs and PVBs) are generally long onshore and short offshore, while foreign banks exhibit a counter trend.
Meanwhile, India's foreign exchange reserves of over $700 billion are large enough to deter speculative moves and allow the Reserve Bank of India to intervene to stabilize the rupee.
The report from SBI Research stated that current reserve levels are equivalent to more than 10 months of imports, and that short-term debt is below 20 per cent of reserves, providing room and time to intervene in the market to prop up the rupee if desired.
However, the research firm cautioned that volatile capital flows and elevated oil prices pose risks to the near-term outlook and urged several policy moves, including a special dollar window for oil marketing companies to meet the daily demand of $250–300 million.
"This should allow for better visibility on genuine FX demand and supply dynamics, and in measuring the efficacy of various countermeasures initiated by the regulator to curb unwarranted volatility," the report said.
The rupee saw its biggest single-day gain in nearly 13 years on Thursday, closing at 93.10 against the US dollar, as authorities stepped up efforts to curb currency speculation. The sharp rally came after the Reserve Bank of India tightened rules in both domestic and offshore markets.
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