Mumbai: After having aggressively defended the rupee earlier this month, the Reserve Bank of India (RBI) is now easing back from intervention as the escalating West Asia conflict roils global markets and constrains its policy options, four economists said.
RBI’s recent pullback in intervention reflects a strategic recalibration rather than a loss of control on the currency, they said, adding that external shocks—from a prolonged war to surging oil prices—are dominating currency movements.
“RBI has stopped intervening in the last two sessions, I mean they are not aggressively defending the rupee,” Dhiraj Nim, economist and foreign exchange strategist at ANZ said, adding that it’s a logical step for the central bank, given and are forcing a reassessment of India’s external balances, growth and inflation outlook.
Since Friday, the Indian rupee has fallen by 1.4% to hit yet another record low of 93.95 per US dollar on Monday. On Friday, the local unit saw a closing low of 93.71, marking a loss of over ₹1 from Thursday, as the US-Israel war against Iran and Tehran’s counter strikes on energy assets in the Gulf have led to a spike in crude oil prices.
In such a scenario, the rupee is being allowed to act as a shock absorber, economists said.
“While the central bank retains the ability to step in, the ability to aggressively defend the rupee is somewhat curtailed now,” Nim said, adding that pressures on reserves, given that the forward book is about $100 billion short and that falling gold prices may have further dented headline foreign exchange reserves.
RBI’s foreign exchange reserves have fallen to $709.76 billion, according to the latest data available till 13 March, from $728.49 billion as of 27 February. The local currency has depreciated by 3% since the on 28 February 2026.
The stance shift comes as the rupee’s decline is increasingly being driven by global rather than domestic factors, limiting the effectiveness of intervention.
Brent crude oil prices have shot up by over 50% since the war started in West Asia. Currently, it is trading at around $108 per barrel. A surge in crude oil prices typically has a trickle effect on the broader inflation in the economy.
“I think this is the right policy to let the rupee depreciate and find its level because all of it is being driven by war conditions and when the dollar is strengthening and the rupee is weakening, there is nothing that the RBI can actually do,” Madan Sabnavis, chief economist at Bank of Baroda said.
He said, heavy intervention risks becoming a futile exercise. “Trying to defend the rupee is like burning foreign exchange reserves because it is not going to serve any purpose. You can do it today, tomorrow but the rupee will start depreciating again. You cannot do it every day,” Sabnavis said.
Intervention is most effective when volatility is driven by local speculation and not global shocks, he said, suggesting that depreciation could eventually trigger a “self-correcting mechanism”.
Other economists emphasized that the central bank’s approach is more nuanced than a simple retreat. “The threshold of protecting the rupee is gone,” Gaura Sengupta, chief economist at IDFC FIRST Bank said, but clarified that RBI has never fully given up control. “They will just gradually let it go in a controlled manner… it’s never going to be a situation where RBI is not there.”
Most economists also view RBI’s approach partly as a catch-up after it held the rupee at around 92.50 for a prolonged period. Going ahead, its intervention in the currency market is likely to be more measured.
“RBI’s intervention will be lesser than what we saw in the first two weeks of March,” Sengupta said, adding that if the crisis persists, it makes sense for the central bank to protect its reserves. “RBI will let the rupee depreciate, but they will still moderate the pace.”
Drawing parallels with past episodes of turmoil such as the , she said prolonged periods of high crude oil prices necessitate conserving reserves, while allowing gradual depreciation of the currency.
Sakshi Gupta, principal economist at HDFC Bank, had a similar view, and said RBI’s mandate is not to defend a specific level but to manage volatility. “They always said that we are not protecting the rupee but are there to control the volatility,” she said.
While the central bank retains enough forex reserves to smoothen excessive swings, Gupta cautioned that it is difficult in such extreme risk scenarios to put up a strong defence, as that would mean “running down on your reserves and almost fighting against the wind”.
At the same time, she warned of the risks of unchecked depreciation, including imported inflation and speculative pressures. “It’s like a circular problem,” she said, adding that RBI is likely to “balance things out as much as possible” in a highly uncertain environment.