The rupee has slipped past 95 to the dollar as oil tests the RBI’s defence
Rising crude prices and persistent dollar demand pushed the currency weaker despite recent intervention by the Reserve Bank of India.
THE INDIQA Research Desk9 Sept 20262 minEconomy
60-Second Summary
Rising crude prices and persistent dollar demand pushed the currency weaker despite recent intervention by the Reserve Bank of India.
UPSC Relevance
PrelimsHigh
MainsGS-III · High
SubjectEconomy
TopicExchange rate, forex reserves and monetary management
Importance★★★★★
Image: Pinakpani / Wikimedia Commons - CC BY-SA 4.0
The Indian rupee weakened past 95 per US dollar on September 9 as Brent crude approached $100 and demand for dollars remained firm. Reuters reported that the RBI had intervened repeatedly in recent sessions, but the latest pressure was strong enough to reverse part of that support.
For UPSC, the episode is a useful example of the limits of currency intervention. A central bank can smooth volatility by buying or selling foreign exchange, but it cannot indefinitely offset a sustained external shock. Oil prices, capital flows, trade balances, inflation expectations and interest-rate differentials all influence the exchange rate.
Prelims Lens
Prelims Lens
The RBI can intervene in the foreign-exchange market to smooth excessive volatility.
Mains Lens
Mains Lens
Central issue: Rising crude prices and persistent dollar demand pushed the currency weaker despite recent intervention by the Reserve Bank of India.
Dimensions: Economy
Limits of exchange-rate intervention
Relationship between oil imports and currency pressure
India angle: The move highlights India’s sensitivity to imported energy prices and dollar demand.
Possible UPSC-style questionWhy can foreign-exchange intervention smooth volatility without permanently fixing the market value of a currency?
