​Limited room, Pg6

Key Highlights:

• The rupee has depreciated approximately 7% against the dollar between late November 2024 and now, reaching about ₹89.2 per dollar.
• In February 2025, the RBI conducted a $10 billion dollar/rupee buy-sell swap auction to inject long-term rupee liquidity into the banking system.
• The RBI sold a net of roughly $50 billion in forex to stabilize the rupee between November of last year and now.
• India's foreign exchange reserves are currently comfortable, standing close to $693 billion.
• Headline CPI inflation in India was reported at 0.25% in October 2025, which is below the RBI’s target range of 2%-6%.

Detailed Insights:

• The rupee's depreciation is attributed to external pressures such as a widening current-account deficit, increased bullion imports, and exporters struggling with high U.S. trade tariffs.
• The RBI uses tools like dollar/rupee swaps to manage liquidity, bolster forex reserves, and prevent disorderly currency depreciation during dollar surges or capital flow reversals.
• Despite the rupee's slide, comfortable forex reserves and low inflation provide the RBI with some flexibility to tolerate moderate depreciation without resorting to aggressive rate hikes.
• India's transition from cheaper Russian crude oil to more expensive U.S. oil, combined with rupee depreciation, could potentially increase inflationary pressure.
• The government needs to focus on reducing India's dependence on oil through measures like faster transport electrification, viewing it as a strategic imperative.
• Existing trade agreements with countries like Japan, the UAE, and ASEAN have negatively impacted India's trade balance, indicating a need for a more strategic trade policy.

Key Concepts Involved:

• Current Account Deficit: The shortfall when a country's import of goods, services, and capital is more than its export.
• CPI Inflation: Measures the average change in prices over time that consumers pay for a basket of goods and services.
• Forex Reserves: Foreign currency assets held by a country's central bank.