Context:

On 21 November, the rupee touched a record low of ₹89.41 per dollar. In the following days, it registered a modest recovery, appreciating to around ₹89.22–89.23 by 26 November—an improvement of nearly 20 paise from its lowest level. This movement was influenced by a combination of policy interventions and favourable global developments, including the Reserve Bank of India’s (RBI) participation in the foreign exchange market.

Factors Influencing the Rupee’s Recovery:

• • • RBI intervention: The most critical factor behind the rebound was active RBI intervention. The central bank sold dollars in both onshore and offshore markets, preventing excessive speculation and calming volatility. By improving the supply of dollars, the RBI helped strengthen the rupee and restored market confidence.
    • Global dollar movements: A mild softening of the US dollar in global markets also provided relief. As global risk sentiment improved and expectations of stable US interest rates emerged, investors moved slightly away from the dollar. This eased pressure on emerging-market currencies like the rupee.
    • External sector dynamics: A temporary decline in global crude-oil prices lowered India’s oil import bill, reducing dollar demand. Meanwhile, steady services exports and remittances continued to support the external account. These flows provided additional stability to the rupee.
    • Foreign portfolio investments: Although foreign portfolio investors (FPIs) had been net sellers earlier—contributing to the rupee’s fall—outflows slowed during the rebound period. Market expectations of policy stability and the RBI’s strong signalling helped moderate FPI withdrawals.

Impact on India’s Economy:

• • • Macroeconomic stability: A stable rupee contributes to overall macroeconomic stability. Currency volatility can disrupt trade, investment, and monetary policy expectations. Even a modest recovery indicates improved market balance and helps maintain economic stability.
    • External sector balance: A stronger rupee temporarily eases pressure on the current account, especially by reducing the cost of key imports such as crude oil. This moderation helps prevent a rapid widening of the trade deficit.
    • Inflation control: Since India imports essential commodities like oil, chemicals, and electronic components, a weaker rupee tends to raise domestic prices. The rupee’s recovery may help contain imported inflation, supporting the RBI’s inflation-targeting mandate.
    • Investor confidence: Currency stability is vital for domestic and foreign investors. A sharp, uncontained fall could signal macroeconomic vulnerability. The recent rebound, aided by RBI action, reassured markets about India’s ability to manage external shocks.

Conclusion:

The rupee’s rebound from its historic lows reflects a combination of strategic RBI intervention, improved global sentiment, and easing domestic pressures. While the recovery provides short-term relief, structural challenges—such as trade imbalances and global financial uncertainties—mean that currency management will remain a critical aspect of India's economic policy.