India’s Rupee Rebounds After RBI Intervenes to Stem Record Devaluation

The Indian rupee (INR=X) surged over 3% in early trading on March 5, 2026, recovering from a record low of 85.67 per US dollar reached the previous day. The sharp rebound followed the Reserve Bank of India’s (RBI) active intervention in foreign exchange markets, where it sold dollars to stabilize the currency amid escalating fears over a potential 50% US tariff on Indian exports. The central bank’s actions were seen as a direct response to speculative pressures and capital outflows that had intensified after US trade officials signaled a possible shift in policy toward India’s export sector. The rupee’s decline had been fueled by a confluence of external risks, including heightened global risk aversion and a spike in the CBOE Volatility Index (VIX), which climbed to 26.8—a level not seen since late 2024. This volatility rippled across emerging markets (EME), with regional equity indices like the MSCI Emerging Markets Index falling 1.7% in early trade. The S&P 500 (^SPX) also dipped 0.6%, reflecting broader concerns about inflation-linked trade disruptions. Market participants now view the RBI’s intervention as a sign of resolve, though uncertainty remains. Analysts note that sustained currency stability will depend on the central bank’s ability to manage inflation, which stood at 5.8% year-on-year in February 2026, just above its target band. Foreign portfolio investors, who had pulled $2.3 billion from Indian equities in the prior month, are reassessing exposure as the rupee’s rebound suggests a potential floor in depreciation. The recovery has immediate implications for India’s export competitiveness, which relies heavily on manufactured goods and IT services. A stable rupee reduces input cost pressure for exporters while improving the real return on foreign earnings. However, the RBI’s continued use of foreign exchange reserves—now down to $612 billion from $650 billion at the start of 2026—could constrain future policy flexibility.