Markets Have the Rupee-Wheel, RBI Keeps the Brakes

The most consequential takeaway from Governor Sanjay Malhotra’s post-policy remarks was not about the rupee’s slide past 90 to the dollar, nor the quantum of dollar reserves, nor even the mechanics of the newly announced three-year swap. It was this clarity: the Reserve Bank of India will not underwrite market comfort at any exchange-rate level. It will underwrite only the process by which the rupee gets there.

For CFOs and treasury heads across India Inc., this distinction is not semantic. It redefines risk. The RBI has once again signalled that companies must no longer expect an invisible floor around psychologically important levels such as 89 or 90. If the rupee moves to a weaker equilibrium in an orderly fashion, the central bank will not obstruct it. This approach forces a structural rethink of hedging strategies, balance-sheet assumptions, and pricing models in a world where currency management is now an enterprise responsibility, not a central-bank guarantee.

Firms that have historically relied on a “hope strategy”, postponing hedging in anticipation of RBI intervention, now face an unambiguous mandate to professionalise risk management. Importers will need to deepen hedge books and shorten response cycles. Exporters must treat favourable movements as opportunities to lock margins rather than gamble on further depreciation. FPIs, too, will have to price in higher unmanaged currency risk when allocating to Indian assets.

Seen from this vantage point, the governor’s articulation does not alter the core framework as much as it sharpens its practical meaning for market participants. It reaffirms that the rupee’s level will continue to be shaped primarily by fundamentals, India’s trade balance, capital flows, and global dollar dynamics, rather than by assumptions about where the central bank might step in. What changes now is the market’s need to internalise this reality more consistently, without reading implicit signals into every move around psychological levels.

End of the RBI Put
This leads to the second important theme embedded in his remarks: the dismantling of the “RBI put.” For years, some traders continue to believe that once the rupee approached certain levels, the central bank would step in to prevent further depreciation.

“We don’t target any price levels or bands. We allow markets to determine prices,” the Governor said in the post-policy briefing, reiterating that the only mandate is to tame “abnormal or excessive volatility.”

The message is twofold. First, there is no floor or ceiling implied anywhere near current levels, and betting on one is a speculative misread. Second, the nature of the intervention will be tactical, not directional. A move from 89 to 91 over a quarter is tolerable; a spike from 89 to 91 in forty-eight hours driven by panic is not.

For companies, this means the rupee can and will test new ranges if warranted by fundamentals. The RBI will ensure the journey is smooth, not that the destination is predetermined.

Volatility Mandate
Governor Malhotra reinforced a dual-track framework:

1. The level is the market’s responsibility.
2. The stability of movement is the RBI’s responsibility.

This distinction matters for corporate treasury planning. A predictable, well-managed glide path allows CFOs to budget, price, and hedge without the fear of whiplash moves. Large swings within short windows remain the central bank’s red line. India’s sizeable $686 billion in reserves provides the confidence to enforce this mandate without compromising monetary policy credibility.

Takeaways for India Inc
The operating environment has shifted. The pricing of currency risk has been transferred decisively to the private sector. CFOs must therefore:

• Hedge systematically, not tactically.
• Budget for wider potential trading ranges.
• Assume no RBI defence at predetermined levels.
• Expect orderly depreciation or appreciation to proceed unhindered, so long as volatility stays contained.

For India Inc., the recent sharp move in the rupee has only clarified how the RBI intends to operate in such episodes, offering firmer contours around which corporate treasury decisions must now be framed.