The Reserve Bank of India is considering its most comprehensive battery of rupee defence measures since the 2013 taper tantrum. Governor Sanjay Malhotra and senior officials have held multiple internal meetings to evaluate options including an out-of-cycle interest rate hike, additional dollar-rupee currency swaps, NRI foreign currency deposit schemes, and sovereign foreign currency bonds, according to Bloomberg.
The rupee has been trading at approximately ₹96.21 to ₹96.57 per dollar in recent sessions after hitting record lows near ₹97 earlier this week. The currency has depreciated roughly 7 to 11% year-to-date, its steepest annual fall since 2013. Foreign exchange reserves have fallen from peaks near $725 billion to approximately $696.99 billion as of mid-May, as the RBI has spent down its buffer defending the currency.
Why 2013 is the relevant parallel
The 2013 taper tantrum was triggered by the US Federal Reserve’s signal that it would begin tapering its bond-buying programme, sending the rupee from approximately ₹54 to ₹69 against the dollar in a matter of months. The RBI’s response that year became a case study in emerging market currency crisis management: emergency NRI deposit schemes that raised $30 billion, aggressive liquidity tightening, spot dollar intervention, and curbs on speculative foreign exchange positions.
The current situation has structural similarities. A sharp external shock, first the Fed taper signal in 2013 and now the Iran war oil shock in 2026, is simultaneously widening India’s current account deficit, triggering FII outflows, and putting downward pressure on the rupee. The policy toolkit available is largely the same. The key differences are that India enters this crisis with significantly stronger reserves at $697 billion versus far lower levels in 2013, along with better corporate balance sheets and more diversified growth drivers.
The full toolkit under consideration
An interest rate hike is the most consequential option and the one that would send the clearest signal to global investors. The repo rate currently stands at 5.25%, held steady at the April 2026 MPC meeting. An out-of-cycle hike before the next scheduled MPC meeting on June 3 to 5 would be a significant policy reversal given that the RBI had been on an easing bias, but would directly address rupee weakness by widening the interest rate differential with the US. The June MPC meeting is now the most watched policy event in Indian financial markets.
An NRI deposit scheme, potentially mobilising up to $50 billion compared to $30 billion in 2013, is the most direct mechanism for bringing dollar inflows into the system. The mechanics are simple: NRIs are offered attractive, above-market interest rates on fixed-term dollar deposits, generating immediate forex inflows. The 2013 scheme worked. At current US interest rates of 3.75%, however, offering competitive NRI deposit rates is significantly more expensive than it was in 2013, a cost the RBI must weigh against the forex benefit.
The $5 billion USD-INR swap auction already announced for May 26 is the least disruptive tool. It injects rupee liquidity while temporarily absorbing dollars, buying time without making a permanent policy commitment. Sovereign or state-owned lender foreign currency bonds represent another inflow mechanism, though one that adds to the government’s foreign currency liability.
Spot dollar sales, net open position limits for banks, and offshore non-deliverable forward market restrictions have already been partially deployed. Governor Malhotra has emphasised orderly depreciation rather than a specific target. The RBI is managing the pace of decline rather than defending a level, a stance that preserves optionality while conserving reserves.
What the June MPC will decide
The June 3 to 5 MPC meeting is the most important policy event for the rupee in the near term. Markets are watching for three possible signals: a rate hike to defend the currency and contain imported inflation; explicit guidance on additional forex intervention tools; or a hold with updated inflation and growth projections that reflect the oil shock’s macro impact.
A rate hike at this meeting would mark the clearest signal yet that the RBI has concluded the currency risk outweighs the growth risk. It would indicate that the cost of allowing further depreciation to inflation expectations, corporate import costs, and financial market stability is greater than the cost of tighter domestic monetary conditions.
The next few days before the MPC will be watched for any emergency announcement, and for whether the US-Iran deal reports that pushed crude lower this week hold, potentially relieving some of the pressure that has made this entire discussion necessary.
This article is for informational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making any investment decisions.