Mayur MohtaWith the rupee crashing to an all-time low of nearly ₹97 against the dollar battered by the Iran war fallout and surging oil prices the Reserve Bank of India is quietly dusting off a crisis playbook it last used over a decade ago. From interest rate hikes to special NRI deposit schemes, here’s what India’s central bank might do next.
India’s Rupee Is Bleeding And the RBI Is Running Out of Easy Options
India’s central bank finds itself at a critical crossroads. The rupee one of Asia’s most-watched currencies has plunged to a record low of nearly 97 against the US dollar this week. The damage is spreading fast, pushing up import costs and shaking investor confidence. Now, the Reserve Bank of India under Governor Sanjay Malhotra is turning back the clock pulling out a crisis playbook that India last used during the dramatic 2013 taper tantrum episode.
Sources familiar with the matter say the RBI is actively weighing several emergency measures. These include raising interest rates, arranging additional currency swaps, and launching fresh drives to pull in dollars from overseas investors.
What Happened in 2013 and Why It Matters Now
India faced a near-identical storm back in 2013. When the US Federal Reserve signalled it would begin tapering its massive bond-buying programme, money stampeded out of emerging markets including India. The rupee nosedived from around ₹55 per dollar in May 2013 to almost ₹69 by August that year a brutal slide in just three months.
The RBI, then led by Governor D. Subbarao, fought back by tightening liquidity and sharply hiking the marginal standing facility rate by 200 basis points. Those steps slowed the rupee’s fall briefly. But the real turning point came only after the newly appointed Governor Raghuram Rajan launched a foreign-currency non-resident deposit programme in September 2013 a scheme that eventually pulled in more than $30 billion.
Today, with the rupee under renewed pressure from the Iran war, elevated crude oil prices, and record foreign portfolio outflows, economists say India may have no choice but to reach for a similar playbook.
The JPMorgan Warning Breaking the Spiral
The stakes couldn’t be higher. Sajjid Chinoy, India economist at JPMorgan Chase Bank, put it bluntly:
“It’s important to avoid a self-fulfilling spiral, where a weaker rupee encourages more hedging, which puts more pressure on the currency and encourages even more hedging. Capital augmentation is needed to break the cycle and, if done, it should be done in scale to alter expectations in the FX market.”
His warning cuts to the heart of the challenge. Without a strong, credible response the rupee could keep sliding in a vicious loop.
The NRI Deposit Route: A Costly But Familiar Fix
Economists now say the RBI may push banks to issue overseas bonds or revive an NRI deposit scheme similar to what was done in 2013. India has never sold sovereign foreign-currency debt directly. However, State Bank of India tapped global markets twice raising more than $4 billion in 1998 and $5.5 billion in 2000 after US sanctions hit India following its nuclear tests.
The catch this time? It will be far more expensive. In 2013, banks offered deposit rates of 3.5% to 5%. Today, banks would likely need to offer somewhere between 8% and 9% to attract overseas funds nearly double the earlier rates given how sharply global interest rates have risen.
Madhavi Arora, economist at Emkay Global Financial Services, flagged this concern directly. Bankers who recently met with RBI officials have also sought subsidised swap rates to make any such deposit programme financially workable.
Rate Hikes A Blunt Tool With Limited Effect
One option on the table is raising interest rates to defend the rupee. But this approach carries serious risks. Higher rates could dent India’s economic growth while offering only modest support to the currency.
Arora was dismissive of the idea. “It did not work in 2013; it will not work now,” she said flatly.
Anubhuti Sahay, economist at Standard Chartered, offered a more nuanced view:
“A combination of measures, such as limiting import demand and incentivising dollar raising via tools including rate hikes, can help break the negative feedback loop between currency market expectations and the pace of rupee depreciation.”
The Bigger Challenge Foreign Capital Is Fleeing
Beyond the immediate firefighting, the RBI faces a deeper, longer-term problem. Foreign portfolio investors have been selling Indian stocks at a record pace with outflows in 2026 already surpassing last year’s record high of $19 billion. The rupee’s woes are not just about speculation or oil prices they reflect a wider erosion of confidence in India’s near-term economic outlook.
Attracting and keeping durable capital inflows the kind that stays even when global conditions get choppy requires something no central bank tool can easily provide.
Sahay summed it up: “Structural reforms, which remains the critical test.”
The RBI has a formidable toolkit, drawn from hard-won lessons across multiple crises. But whether the same measures that steadied the rupee over a decade ago can work again in a world of higher rates, a hot war in West Asia, and record fund outflows remains the defining question for India’s economy right now.
Akshay Didwaniya
The BRICS Times
Aditya Didwaniya