Bankers don’t wear superhero capes or stick their necks out during a precarious situation. That is the generalised assumption. But this weekend, India’s Reserve Bank of India did something unexpected. The nation’s central bank took a look at the battering the Indian rupee was bearing, and decided, ‘enough is enough’ and jumped into action.
It limited the amount of money banks can hold in onshore currency markets to just 100 million dollars a day, forcing many to sell off dollars. The result? The rupee, which had plummeted, by some estimates to as much as 95.04 (some estimates put it 94.82) to the dollar, recovered on Monday morning by as much as 130 paise at one point.
However, as the gains seemed to whittle off through the day’s trading, experts now wonder how much leeway the central bank has left in the face of rising oil prices—after all, it has burnt up quite a bit of India’s foreign exchange reserves in the last one month of the war dealing with the spike in oil and gas prices, and the weekend move is already facing pushback from banks.
But the big question is this—does all this mean that the Indian rupee is hitting a century, that is 100 rupees to a dollar, now looking inevitable?
The signals are not helpful. The Indian rupee has been the worst-performing currency in Asia for quite a few months now, and things show no signs of looking up. As a net energy importer, sorely dependent on petroleum products from the Middle East, the conflict there puts India in a very difficult position. And by all indications, it will take some time to stabilise even if a lasting ceasefire comes into effect in West Asia soon enough.
But for India, the real worry is something deeper. The fundamentals of the Indian economy, even if the narrative would have had you believe that all this currency crisis is due to the Iran war and the spike in oil prices. The fact is that while petroleum prices have been volatile since the war broke out, which was just a month ago, it really does not explain why the Indian rupee has been steadily falling through 2025, becoming Asia’s worst-performing, or even the years before.
Take, for example, the Indian rupee in 2014—it was at 60 rupees to the dollar in the summer of 2014, though in four years' time, it had lost value to hit 70 rupees. Then, the decline became faster. With fears of a pandemic rising and foreign investors pulling out, it hit 75 rupees a few days before Prime Minister Narendra Modi imposed a nationwide lockdown to prevent the coronavirus from spreading. In two years of lockdown and multiple waves of Covid, the currency had breached 80 rupees.
Then, as they say, it’s all history, and a recent one at that. It took just less than three years after that for the rupee to cross 85 to the dollar, and then in the last one and a half years or so, in quick succession, it went up and beyond 90 rupees to the dollar, culminating in a near skirmish with 95.
Sadly, history does not end, and there is almost a sense of dread and resignation to the fate that the Indian rupee is now steadily onto its next dubious milestone—hitting a century against the dollar, especially if the war holds.
But worryingly, India’s fundamental issues go beyond just the present conflicts. At the core of it lies its trade imbalance, with the country importing more than it exports. The flood of foreign investors pulling out of the country is turning into a deluge– 1.13 lakh crore rupees of investor money left the country just since the Iran war broke out, by some estimates. Add to that tariff pressures as well as the chaotic geopolitical scenario India is faced with, and you have a perfect storm ringing in the rupee @ 100. Sooner, or later. And if trends are to be believed, with a lot of volatility on the way.