Several factors contributed to the initial weakening of the Indian rupee. Firstly, global economic uncertainties, including the ongoing COVID-19 pandemic and geopolitical tensions, led to a flight to safety by investors, resulting in a strengthening US dollar. This trend put downward pressure on emerging market currencies, including the rupee. Additionally, rising inflation in India and concerns about the country’s fiscal deficit weighed on investor sentiment, causing foreign investors to withdraw capital from Indian markets.
In response to these challenges, the RBI took various measures to support the rupee and stabilize the currency market. The central bank engaged in currency intervention by buying rupees to increase their demand, which helped counteract the downward pressure. Furthermore, the RBI adopted a proactive monetary policy stance by keeping interest rates at low levels and providing liquidity to the financial system. These measures aimed to encourage investment and boost economic growth.
Source:-abhi niyuAdditionally, the RBI implemented capital controls to limit the outflow of funds from the country, ensuring that foreign investors had confidence in the stability of the rupee. The central bank also closely monitored the forex market to prevent speculative activities that could exacerbate the rupee’s decline.
Source:- the economic times
In summary, while the Indian rupee initially weakened in line with other Asian currencies due to global and domestic factors, the intervention and policy measures implemented by the RBI played a crucial role in limiting the fall and maintaining stability. These actions reflected the central bank’s commitment to safeguarding the country’s economic stability and investor confidence in the Indian market
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