In the wake of evolving global financial dynamics, Reserve Bank of India (RBI) Governor Sanjay Malhotra addressed the media during the post-monetary policy press conference on April 9, 2025, providing crucial insights into the central bank’s position on the foreign exchange (forex) market and rupee movement.

RBI Will Intervene Only in Case of Excessive Volatility

The Governor made it clear that RBI will not target a specific level for the Indian rupee (INR). Instead, market forces will determine the exchange rate, and the RBI will act only if the rupee experiences excessive volatility.

“Any excessive volatility, if it requires an intervention, we will certainly intervene wherever it is required,” said Malhotra.

He reiterated that India’s forex market is deep and wide, and traders and market forces are best positioned to determine fair exchange levels.

This clarification signals that while the RBI is vigilant about stability, it is not adopting a rigid or fixed exchange rate strategy—a stance aligned with global central banking norms where intervention is usually meant to calm erratic moves rather than control currency direction.

Rupee Pressures in FY25: Key Challenges Identified

According to the RBI’s monetary policy report, the Indian rupee has been under pressure through the financial year FY25. The major contributors to this downward pressure included:

• Appreciation of the US Dollar – A stronger dollar naturally weakens most emerging market currencies, including the INR.

• Persistent Foreign Portfolio Investor (FPI) outflows – These outflows added further demand for the dollar, weakening the rupee.

• Global economic uncertainty – Unpredictability in global markets kept foreign investors cautious, indirectly affecting the rupee.

• Widening trade deficit – A higher import bill compared to exports increased the demand for foreign currency.

These factors combined to create intense downward pressure on the rupee, especially in Q4 of FY25.

Rupee Recovery in March 2025

Despite prior weakness, the INR showed a meaningful recovery in March 2025. The RBI’s report credited this to:

• Renewed FPI inflows – Increased investments helped stabilize the demand-supply ratio for the rupee.

• Improved risk sentiment – A more optimistic global outlook improved investor confidence in Indian markets.

This recovery shows that market correction and investor confidence can naturally strengthen the rupee without the need for direct central bank intervention.

Volatility and Forward Premia in H2FY25

The RBI’s report also noted heightened volatility in the INR, especially during the second half of FY25. Volatility trends reflected broader trends in global foreign exchange markets, as economies responded to fluctuating interest rates, inflation levels, and geopolitical developments.

Another key point in the report was the behavior of forward premia—the cost of locking in future forex rates. During H2FY25, forward premia:

• Remained elevated across all maturities

• Exhibited significant fluctuations

• Reflected tighter liquidity conditions

• Signaled heightened global economic uncertainties

This signals that global tightening and uncertainty are directly impacting hedging costs and expectations in the Indian forex market.

RBI’s Balanced Stance: Intervention Only When Necessary

The RBI's message is clear—it prioritizes market-led price discovery for the rupee but stands ready to act swiftly if volatility crosses acceptable limits. This approach ensures that the market has room to operate freely, while safeguards remain in place against potential shocks.

This position also helps reassure foreign investors, suggesting that while the rupee is not being artificially managed, the RBI is watchful and capable of maintaining currency stability when needed.

Looking Ahead: Rupee Outlook in a Global Context

Going forward, the movement of the rupee will likely depend on:

• The trajectory of US interest rates

• Crude oil prices

• India’s trade balance and current account deficit

• Global geopolitical events

• Domestic inflation trends and monetary policy

With global economic uncertainties likely to continue into FY26, currency markets, including the INR, are expected to remain sensitive and volatile.

Key Takeaways

• The RBI is not targeting a specific level for the INR, allowing markets to determine the exchange rate.

• Intervention will only occur in the face of excessive volatility—a sign of confidence in market mechanisms.

• The rupee’s recent recovery in March 2025 shows that investor sentiment and FPI behavior play a critical role in exchange rate stability.

Conclusion

The Reserve Bank of India has reaffirmed its commitment to a market-driven currency regime, with intervention as a tool for stability—not control. This mature, flexible approach aims to preserve investor confidence while shielding the economy from sudden and disruptive forex swings.

As global uncertainty looms and investor behavior fluctuates, the RBI’s measured forex policy will continue to play a pivotal role in safeguarding India’s economic resilience.