Rupee Nears ₹97 Against Dollar: Why RBI Intervention Alone May Not Be Enough

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By Prof. S.S. SOMRA

The rupee’s sharp decline raises import costs and inflation risks even as exporters gain from a weaker currency. Sustainable stability will depend on domestic value addition, MSME competitiveness and stronger banking safeguards

Jaipur, October 12, 2026 — On October 9, the rupee closed at approximately ₹96.73 against the dollar, having touched a low of ₹96.96. If the depreciation of the rupee were merely a change in a number, why would the Reserve Bank of India (RBI) be making such efforts to stem its fall or be so concerned about it? This question may appear simple, but it conceals several fundamental challenges facing the Indian economy.

In reality, the currency exchange rate is not just a figure displayed on a screen; it reflects the country’s economic strength, the balance of imports and exports, foreign capital inflows, and domestic production capacity.

When the rupee depreciates, India has to spend more rupees to purchase crude oil, natural gas, electronic equipment, machinery, and various industrial raw materials. This impact ripples through everything from transportation costs to production expenses.

Ultimately, inflationary pressure rises, placing a burden on the common man’s pocket. For companies that have borrowed in dollars from abroad, repayment becomes costlier, and the burden of government debt also increases.

Therefore, the rupee’s continuous decline cannot be dismissed as a mere market fluctuation. However, the Ministry of Commerce argues that exports are rising and that a weaker rupee is not detrimental in every scenario.

It offers Indian exporters a competitive edge in foreign markets and increases the rupee value of earnings from abroad. Yet, the real benefit is realized only when there is substantial domestic value addition in exports and production is not overly dependent on imported raw materials. If imported materials account for 50 to 60 percent of a product’s manufacturing, a weaker rupee drives up production costs as well. Consequently, despite rising exports, net gains remain limited.

Therefore, the success of exports should be assessed not merely by their total value, but also by the share of domestic production and value addition involved. This is where the roles of ‘Make in India’ and Micro, Small, and Medium Enterprises (MSMEs) become crucial.

Merely aiming to increase production is insufficient; the quality of production, productivity, and domestic value addition must also be enhanced.

The Reserve Bank has tightened foreign exchange market regulations to curb rupee volatility and maintain market discipline and transparency. New restrictions have been imposed on foreign currency-related derivative transactions. The limit has been reduced from $100 million to $5 million. This rule will also apply to rupee-linked currency derivatives traded on recognized stock exchanges.

According to reports, starting October 12, 2026, the RBI will directly meet the dollar requirements of oil companies—Indian Oil, HPCL, and BPCL—from its own reserves to reduce dollar demand in the open market. On October 7, the RBI raised the repo rate by 0.25 percentage points to 5.50%, effectively increasing interest rates.

Despite this, the rupee remains under pressure. The sharp depreciation of the rupee may halt, and volatility could subside in the coming days. The impact will depend on trends in dollar demand and foreign investment flows.

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Lower oil prices, improved exports, and steady foreign investment inflows could provide support. However, if crude oil prices remain high and foreign investors continue to withdraw funds, the rupee may remain under pressure despite the RBI’s measures.

In summary, the RBI’s new policies could slow the rupee’s depreciation and bring stability to the market; however, it is premature to predict whether the rupee will begin to strengthen consistently or retreat below the ₹95-per-dollar mark.

If we look at the last 12–13 years (from 2013 to October 2026), the rupee has experienced its steepest decline to date. The cost of one dollar rose from ₹61.92 at the end of 2013 to ₹89.84 by the end of 2025, reaching approximately ₹96.7 in October 2026; one now has to pay about ₹34.8 more to purchase a dollar. The dollar’s value in rupee terms has increased by approximately 56%, while the rupee’s value against the dollar has depreciated by about 36% during this period.

A rough estimate suggests that a 12–14% depreciation in the rupee’s value drives up inflation by one percent, and for every one-rupee drop in value, the trade deficit burden increases by ₹1 lakh crore.

The stability of the rupee is linked not only to trade but also to the strength of the financial system. If the banking system lacks adequate capacity to handle crises, the economy could face immense pressure during a major financial shock.

A matter of concern is that a review report by the Financial Stability Board (FSB)—an international body that monitors the global financial system—has highlighted worrying aspects of the Indian banking system.

Both India and Argentina have failed to meet international standards regarding the establishment of a public backstop fund mechanism to provide immediate liquidity during emergencies to distressed or failing systemic banks.

Among the 19 major nations reviewed by the FSB, most were found to lack credible emergency funding mechanisms to safely wind down or sell failing banks without resorting to nationalization using taxpayer money.

The FSB has clearly directed that countries should address this regulatory gap prior to a crisis, rather than waiting for a bank failure to occur. The FSB will assist its member nations by sharing best practices, reviewing implementation guidance, and monitoring progress.

For countries like India, this review serves as a clear warning that establishing robust public frameworks for emergency liquidity and bank resolution is imperative to maintain financial stability and shield financial systems from shocks.

The way forward is clear: coordinating the government’s industrial, trade, energy, and financial policies—alongside reviewing and reforming the country’s economic policies—is essential to provide a sustainable foundation for the rupee.

(This is an opinion piece. Views expressed are the author’s own.)