Rupee on shaky ground, touches fresh low of 93.73

Why in news

The Reserve Bank of India (RBI) intervened in the forex market as the Indian rupee hit a fresh low of 93.73 against the US dollar due to geopolitical tensions and capital outflows.

Background

The rupee declined by more than 2.5% since the start of the Iran war. Traders attributed the decline to sustained foreign portfolio investor (FPI) outflows and high crude oil prices.

Facts for Prelims

• FactThe rupee declined by more than 2.5% since the start of the Iran war
• BodyRBI (Reserve Bank of India) intervened to moderate the currency's decline
• FactLakshmi Iyer (Bajaj Finserv) projected a potential weakness towards 94-95/$ levels

For Mains

Q. Analyze the factors influencing the volatility of the Indian Rupee and evaluate the efficacy of RBI's intervention strategies in managing external shocks.

Dimensions to cover in your answer

• Capital flight: Impact of sustained foreign portfolio investor outflows on domestic liquidity
• External shock vulnerability: Correlation between geopolitical instability in the Middle East and crude oil-driven inflation
• Monetary policy trade-offs: Balancing currency stability against inflation targets during high oil price regimes

Keywords: Foreign Portfolio Investment · Currency Depreciation · Geopolitical Risk · Monetary Intervention · Capital Outflow

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