Rupee slide: RBI lets currency weaken amid outflows; focus shifts to curbing speculation – The Times of India

India’s central bank will allow the rupee to weaken as the country’s external position comes under strain from slowing dollar inflows, widening trade pressures and heavy foreign selling in domestic markets, according to sources cited by news agency Reuters. The Reserve Bank of India (RBI), which had been actively supporting the currency until last month through sizeable dollar sales, has let the rupee depreciate 1.3% in the last seven trading sessions, taking it to a record Rs 90.42 per dollar. The rupee is now down 5.5% this year, making it Asia’s worst-performing currency.According to three people familiar with the RBI’s thinking, the central bank is no longer inclined to defend any specific exchange-rate level and will focus instead on preventing disorderly movements or speculative pressure. “It doesn’t make sense to spend reserves when fundamentally everything is against the currency,” one of the sources said, as per Reuters. Another source said the RBI “does let the rupee move more than it normally would” whenever the underlying demand for dollars warrants it. The central bank has not commented on the matter.India has witnessed significant portfolio outflows, with foreign investors selling $17 billion worth of equities so far this year, Reuters reported. Foreign direct investment, external trade flows and offshore fundraising have all slowed. While the rupee’s fall below the psychologically sensitive Rs 90 mark has attracted attention, the RBI is prepared to counter attempts at speculative build-ups, a third source said.Market participants remain cautious. A weaker currency gives the RBI more room in policy terms but risks making Indian assets less attractive to overseas investors. “A weakening Indian rupee is definitely a negative when it comes to investing in Indian equities,” said Sam Kongrad of Jupiter Asset Management, adding that his firm remains “neutral weight” on India, as per Reuters.MSCI’s India index has gained 7% this year, but rupee weakness has cut dollar returns to below 2%, far behind South Korea and Hong Kong.Some investors believe the impact could ease if a resolution to trade frictions with the United States emerges and fresh foreign flows come through potential global index inclusion. Others argue India’s strong domestic fundamentals — including 8.2% GDP growth in July–September — may help offset currency weakness over time.“I’m not losing sleep over it,” chief economic adviser V Anantha Nageswaran said on Wednesday. He added that the rupee’s slide has not fed into inflation and said he expects a recovery in 2026.Meanwhile, the rupee staged a brief rebound on Thursday, rising 26 paise to Rs 89.89 on reports of supposed RBI intervention and a softer US dollar, as per PTI. Earlier in the day, it hit another record low of Rs 90.43 amid foreign selling and costlier crude oil. Traders said uncertainty around the India-US trade deal, elevated oil prices and persistent FII outflows continue to weigh on sentiment, though a weaker dollar and expectations of a US rate cut may offer some support.The market is now awaiting the RBI’s monetary policy announcement on Friday, which comes at a time of rising GDP growth, easing inflation and ongoing geopolitical uncertainties.