Why the Rupee Is Falling — and What the RBI Is Doing About It

In recent weeks, the Indian rupee has been under noticeable pressure, steadily weakening against the US dollar. On March 1, the exchange rate stood at around 91 per dollar. By March 27, it had climbed to nearly 95. This sharp movement has raised concerns across the economy—impacting businesses, policymakers, and everyday consumers alike.

India is a net importer, meaning it imports more goods than it exports. This includes essential commodities like crude oil, electronics, machinery, and more. Most of these imports are priced in US dollars.

So, when the dollar becomes stronger relative to the rupee, India has to pay more in rupee terms for the same quantity of imports. This leads to higher import costs, inflation, weaker economic position, and stress on the balance of payments.

The Reserve Bank of India (RBI) usually controls this by selling dollars from its forex reserves. This increases supply and reduces the dollar price. However, this approach is not sustainable because reserves are limited.

Over the years, the dollar has steadily risen from 60–70 to 75–80 and now 94–95. RBI cannot keep defending the rupee only by selling dollars.

So, RBI introduced a new measure—limiting banks’ Net Open Positions (NOP) and asking them to unwind excess positions.

Banks were doing arbitrage by buying dollars in India and selling in offshore markets like Singapore for profit. This increased demand for dollars and weakened the rupee further.

RBI’s step forced banks to reduce such trades and sell excess dollars. This increased supply and reduced speculative demand.

As a result, the dollar rate fell from 95 to around 93.

This move is important because it reduces dependence on reserves, controls speculation, and stabilizes the market.

In conclusion, RBI is now focusing on structural solutions instead of temporary fixes. This helps build a stronger and more resilient financial system.