Over several consecutive quarters, the rupee has recorded a sustained decline in value. Speculation among analysts and economists about whether the rupee could track toward the 100-per-dollar threshold gained traction after the currency's one-year forward rate grazed that level.

Four converging pressures — sustained outflows of capital, elevated oil prices, diplomatic friction tied to the US-Iran standoff, and rising yields on American government bonds — pushed the currency to a record low, with its value touching nearly 97. Interventions announced by the Reserve Bank of India in the previous week pushed the rupee notably higher against other currencies, and by the close of trading that Friday the figure had settled at 96.61. From that point, the value climbed by Re 1.36, a gain of 1.41%, bringing the rate to 95.24.

Foreign exchange reserves held by the Reserve Bank of India have reached an all-time high, positioning the central bank to draw on those holdings when conditions in currency markets call for intervention. Inflows tied to the FCNR(B) deposit programme ran into the billions of dollars, strengthening the country's foreign exchange reserves to a more stable footing.

SBI Research analysts described the steps taken by the Reserve Bank of India in the preceding days as a broader-than-usual monetary effort to slow the rupee's slide. To redirect approximately $10–12 billion each month away from the open spot market, the RBI established a dedicated dollar-supply channel through which state-owned oil marketing companies could access foreign exchange directly. Alongside lifting the daily CRR maintenance floor to 99%, the Reserve Bank of India moved to drain excess funds from the banking system by scheduling open-market bond sales worth Rs 25,000 crore.

A ban on rebooking cancelled rupee derivative contracts formed part of updated foreign exchange rules put in place by the Reserve Bank of India. Under a revised set of rules covering all Authorised Dealers, the minimum notional value at which FX derivative positions can be taken without a corresponding underlying exposure was brought down from $100 million to $5 million. Two further changes came into effect: paperwork rules were tightened to block overlapping hedging positions, and a Foreign Exchange Risk Reserve was established to cover contracts above a set threshold.

Vivek Kumar, an economist at QuantEco, described the RBI's package of special measures as a well-calibrated response to both domestic and external macroeconomic pressures, arguing in remarks to a news channel that tightening borrowing costs alongside a drawdown of surplus liquidity represented a fitting policy stance given the inflation and currency risks then taking shape. Stricter controls on how the rupee is hedged and traded could narrow the room available for speculative activity, potentially interrupting the cycle in which expectations of a weaker currency tend to reinforce themselves, though any impact from the measure is likely to fade over time rather than hold.

On September 17, the Federal Reserve lifted its benchmark interest rate — a move that ended a pause stretching back to July 2023, when policymakers had last adjusted borrowing costs upward. When the Federal Reserve has lifted borrowing costs, developing economies have tended to feel the strain through redirected investment flows, tightened access to credit, and currency depreciation.

Kumar noted that a strong dollar, elevated energy costs, and ongoing portfolio outflows continue to weigh on the rupee, adding that while the announced measures may steady the currency in the near term, they are unlikely to drive any sustained turnaround beyond an initial short-lived bounce. Lasting stability in the rupee, he argued, hinges on an easing of prevailing global pressures, while the RBI in the meantime could direct its attention toward holding an ex-ante real policy rate in the 1.0–1.5% band as a foundation for sustained macroeconomic equilibrium. Attracting foreign investment, he noted, could serve as a complementary layer to those efforts.

No exchange-rate floor or ceiling for the rupee against the dollar forms part of the monetary authority's stated policy framework. Steps taken in that direction would target the forces driving price swings and market instability.

PwC India's Ranen Banerjee noted that the RBI's latest policy actions are aimed at bringing greater order to foreign exchange flows, particularly by channelling supply more efficiently toward oil companies while curbing purely speculative demand, rather than altering the underlying structural balance between forex supply and demand. SBI Research pointed to a gap in the policy response, arguing that alongside the RBI's efforts to navigate a turbulent global environment, the government has yet to act on longstanding structural barriers to capital inflows. Among its proposals, the document calls for doing away with the preferential tax rate applied to long-held equity investments. Curtailing the movement of capital abroad would become a more tractable problem under such an arrangement.

Malhotra, who heads the Reserve Bank of India, has put forward the view that the rupee's current exchange rate sits below its fair value. Economists typically define an undervalued currency as one trading below the level that a country's underlying economic conditions would otherwise support. Among the perspectives being debated is the view that the RBI ought to step back and let the rupee settle at a rate driven by open-market activity. In a statement from the Fund, India was advised to let currency movements serve as a buffer against external pressures.

When a currency sits at a low point, there is nothing to indicate that a rebound in its worth is imminent. Prolonged softness in the exchange rate remains a possibility, driven by factors such as outflows of investment capital, instability in global markets, or other pressures bearing on trading conditions.

When a currency loses value against others, imported goods tend to become more expensive, while domestic producers selling abroad may find their offerings more attractively priced in foreign markets. When oil prices rise, the cost of imported goods tends to follow, placing an additional strain on an economy already contending with inflationary pressure from other directions. Exchange-rate depreciation in import-reliant economies carries a well-documented tendency to lift consumer prices across the board. Elevated energy and fertiliser prices, once converted into rupee values, place added strain on public finances.

Hajra, serving as chief economist at Anand Rathi Group, pointed out that the immediate financial burden falls especially hard on India, where petroleum import reliance stood at around 88.7% during FY2025–26 based on PPAC figures, adding that a weakening rupee amplifies any oil-price increase by pushing up domestic production expenses and putting upward pressure on consumer prices. Currency depreciation tends to raise the cost of servicing unhedged foreign-currency debt denominated in rupees, erode domestic purchasing power, and put downward pressure on the returns that overseas investors receive in dollar terms. Currency depreciation pushes up the rupee-denominated cost of imported goods straight away, he noted, while any narrowing of the dollar-denominated trade gap depends on how export and import volumes adjust in the period that follows.

Those working in the field argue that currency policy should aim to align the exchange rate with its real effective value, rather than fixing it to any predetermined level. Radhika Rao, Senior Economist and Executive Director at DBS Bank, noted that although room for exchange-rate movement can help absorb external pressures, those setting monetary policy remain attentive to the possibility that sustained, directional currency weakness could feed on itself over time. Preventing a runaway drop in the currency's worth carries as much weight as keeping policy options open, she told a television broadcaster, noting that once depreciation crosses a particular threshold, it tends to disrupt capital movements, domestic prices, and broader market confidence in ways that draw active intervention from policymakers.

Rao's observation pointed to the breadth of those restrictions as a signal that authorities have drawn an informal threshold around the USD/INR rate, with the currency's recent slide being treated by policymakers as a pattern of disorder rather than a movement tied to underlying economic conditions. Banerjee argued that the rupee's value ought to be left to settle at whatever level dollar-denominated foreign exchange demand and supply dictate, adding that attempts to pin down an exchange rate tend to prove ineffective given the limited tools available to address the external forces that drive currency flows. Rupee exchange-rate swings driven by speculative activity require active oversight, and that intervention is precisely what the Reserve Bank of India has been carrying out, he told a television channel.

Properly gauging whether a currency is overvalued or undervalued, Hajra pointed out, goes well beyond tracking its nominal level against the dollar — a thorough assessment draws on inflation-adjusted exchange rates across trading partners, alongside productivity trends and the state of the external balance. Speaking to a broadcaster, he explained that even a currency trading below its underlying worth can lose ground in the short term when demand for dollars outpaces available supply, and that he supports a measured approach to intervention — one aimed at breaking feedback loops of continuous depreciation while still leaving room for the exchange rate to adjust under lasting external pressures. The goal, he stated, was a measured transition alongside price expectations that remain firmly grounded.

Some economists argue that the domestic economy's growth trajectory and expansion prospects are currently being weighed down by the pull of capital toward artificial-intelligence-driven investments, attractive yields in advanced economies, and elevated oil prices — though Banerjee noted that this represents a passing phase requiring careful macroeconomic management, pointing to upward revisions in growth forecasts by nearly all major external agencies as evidence that the underlying foundations of the economy remain intact.

Where the IMF tends to advocate for exchange rates shaped by open-market forces, the RBI operates under a different set of priorities — one in which gradual, stable currency movement takes precedence. Data from the central bank pointed to the rupee trading below its fair value, with prevailing economic conditions offering little justification for depreciation at that magnitude.

EY India's chief policy adviser, DK Srivastava, put forward the view that the US dollar carries excess valuation while the rupee trades below its fair level, attributing part of that gap to higher US bond yields drawing capital out of India and placing the domestic currency under strain — a backdrop, he argued, that warrants the Reserve Bank of India steering the rupee along a path aligned with the inflation gap between the two economies. Srivastava noted that, although price pressures remain above target in both nations, India recorded an average CPI reading of 4.8% across June through September 2026, while the United States posted roughly 3.4% over June through August 2026 — a gap that, in his view, points toward some degree of currency depreciation being justifiable.