India’s Central Bank Tightens Grip on Rupee Amid Economic Growth

The Reserve Bank of India has resumed its aggressive intervention in currency markets, despite the country's robust economic growth. The rupee has depreciated 3.4% year-to-date, underperforming most Asian peers. Market watchers had speculated about looser controls when the currency showed volatility earlier this year, but recent dollar sales through state banks confirm the RBI's commitment to managed stability.

Foreign exchange analysts remain cautious, with a Reuters poll of 37 experts showing little expectation for significant rupee movement. The central bank's net short dollar forward positions surged by $6 billion in September to $59.4 billion, marking the first increase in six months as pressure on the rupee intensified.

Some market participants question the RBI's strategy. "What's the logic in holding the rupee at some level and then forcing it back down?" asks Anil Bhansali of Finrex Treasury Advisors. The approach contrasts with India's economic fundamentals, creating what some see as artificial constraints on currency movements.