SBI Research Urges RBI to Intervene as Rupee Fall Outpaces Economic Fundamentals

The Indian rupee has come under significant pressure in recent months, prompting SBI Research to call for stronger intervention by the Reserve Bank of India (RBI).

According to the report, the currency's recent decline against the US dollar appears disproportionate to India's underlying economic strength. While global uncertainties and foreign capital outflows have weighed on the rupee, SBI Research argues that India's macroeconomic fundamentals remain strong enough to justify a more stable exchange rate.

The report also believes the RBI has sufficient resources at its disposal to counter excessive volatility and prevent a prolonged one-way slide in the currency.

Why Is SBI Research Concerned About the Rupee's Fall?

The report points to the pace of depreciation as a key concern.

"The speed of rupee depreciation has been reckless, and rupee took only 152 days to depreciate by Rs 5 per dollar (from Rs 90 to Rs 95)," the report said, noting that the rupee touched 96.83 against the US dollar on May 20.

For SBI Research, the issue is not merely that the rupee has weakened, but that the decline has occurred much faster than economic fundamentals would suggest.

"The present Rupee depreciation is indeed higher when seen against India's macroeconomic fundamentals and clearly when compared with other currencies against the dollar strength," SBI Research said.

The report argues that India's economic position remains relatively robust, making the scale of the currency's weakness difficult to justify purely on domestic factors.

Does the RBI Have Enough Firepower to Support the Rupee?

SBI Research believes the answer is yes.

The report notes that India's foreign exchange reserves remain among the strongest cushions available to policymakers.

"India's FX reserves are optimally sufficient to combat the unidirectional slide of rupee," it said.

Although reserves have fallen by around USD 47 billion since February 27, 2026, they still stand at approximately USD 680 billion. According to the report, that level provides ample room for the RBI to intervene in currency markets if volatility becomes excessive.

Foreign exchange reserves are often used by central banks to smooth sharp currency movements by selling dollars and buying domestic currency when necessary.

Why Is SBI Research Calling for Stronger RBI Intervention?

The report argues that intervention has historically helped stabilise the rupee during periods of stress.

"We believe RBI's wholehearted/ large-scale intervention ideally helps Rupee to stabilize," it said.

According to SBI Research, stronger and more sustained action could help reduce speculative pressures and restore confidence in the currency market.

The report suggests that the RBI should continue using its available tools to ensure orderly market conditions, especially during periods of heightened uncertainty.

What Factors Are Driving the Rupee's Weakness?

While the strengthening US dollar remains an important factor, SBI Research says several additional pressures are weighing on the Indian currency.

The report highlights rising risk aversion linked to the ongoing conflict in West Asia, which has increased investor caution across global markets.

Another major factor is the sharp withdrawal of foreign investment from Indian equities. According to the report, India has witnessed net foreign institutional investor (FII) equity outflows of USD 22.7 billion since the outbreak of the West Asia conflict.

When foreign investors pull money out of domestic markets, demand for dollars tends to increase, putting pressure on the local currency.

Is the Rupee Undervalued?

SBI Research believes the answer is yes.

The report argues that the rupee has weakened beyond levels suggested by broader trade-weighted indicators and economic fundamentals.

"The current Rupee value is not in synchronization with India's domestic macro fundamentals," the report said.

In essence, SBI Research contends that the currency's current market value reflects external shocks and investor sentiment more than India's actual economic position.

What Does SBI Research Expect From the RBI's Upcoming Policy Meeting?

Despite advocating stronger currency intervention, SBI Research does not expect the RBI to change interest rates at its upcoming Monetary Policy Committee meeting.

The report expects the central bank to maintain a status quo on policy rates as inflation risks remain elevated.

Higher crude oil prices, fuel cost pressures and geopolitical uncertainties continue to pose inflationary challenges, limiting the scope for monetary easing.

As a result, SBI Research expects the RBI to keep interest rates unchanged while relying on other policy tools to manage currency volatility and maintain market stability.

What Does This Mean for the Economy?

The report's central message is that the rupee's recent weakness appears disconnected from India's broader economic fundamentals.

While global factors such as geopolitical tensions, dollar strength and foreign investment outflows continue to create pressure, SBI Research believes India's sizeable foreign exchange reserves give the RBI enough capacity to prevent excessive currency volatility.

Whether the central bank chooses to intervene more aggressively could become one of the key policy questions in the coming months as markets continue to navigate an uncertain global environment.