​Limited room: On the Indian rupee – The Hindu

Clipped from: https://www.thehindu.com/opinion/editorial/limited-room-on-the-indian-rupee/article70326823.ece

India must reduce dependence on oil imports to stabilise the rupee

Updated – November 27, 2025 08:26 am IST

Between late November 2024 and now, the rupee has depreciated about 7%, sliding from roughly ₹83.4 a dollar to about ₹89.2. This is not unprecedented as in 2018, it slid 11%-12% against the dollar. The comparison is instructive because the political and trade backdrops have echoes of that earlier period. In 2018, during the first term of U.S. President Donald Trump, global dollar strength, rising U.S. interest rates and trade tensions pressured emerging market currencies, including the rupee. The RBI used its first longer-term currency-swap as a systemic liquidity check. In 2019, it completed a $5 billion three-year dollar/rupee swap. And in February 2025, it carried out a $10 billion dollar/rupee buy-sell swap auction to infuse long-term rupee liquidity into the banking system under global stress. Such swaps are a standard tool by central banks to supply liquidity, shore up forex reserves and prevent disorderly currency depreciation when the dollar surges or capital flows reverse. The steep rupee slide in November arises in a context of external pressures — a widening current-account deficit, driven partly by higher imports of bullion, as a hedge in uncertain times, and exporters scrambling to maintain competitiveness amid high U.S. trade tariffs. In such a hostile global macro-environment, the RBI’s mandate is limited: under the floating-but-managed regime, it can only ‘smoothen volatility’ rather than fix the exchange rate.

Between November last year and now, the RBI sold a net of roughly $50 billion in forex to stabilise the rupee. Even so, the slide has proceeded, highlighting the external pressures. That said, there is room for cautious optimism. India’s foreign exchange reserves are comfortable — close to $693 billion. On the domestic front, retail inflation has slumped: headline CPI inflation came in at just 0.25% in October 2025, well below the RBI’s target-band of 2%-6%. This gives the RBI space to tolerate modest currency depreciation without triggering aggressive rate hikes especially as India transitions from cheaper Russian crude to relatively costlier U.S. oil imports. With crude accounting for over a fifth of total imports in FY25, rupee depreciation combined with costlier oil imports could exert upward pressure on inflation. Given this environment, monetary stabilisation alone cannot suffice. The Centre must address India’s long-standing vulnerability: heavy dependence on oil. Steps such as faster transport electrification must be treated as strategic imperatives and pursued with urgency. These must be done with a well thought-out trade policy, as opposed to a raft of bilateral trade deals that India has focused on , in the hope that these would diversify trade routes. If anything, trade agreements with Japan, the UAE and ASEAN have tilted the trade balance against India.