Rupee Stability: RBI Intervention and Liquidity Steps (Feb 2025)
Why in the news
After steep depreciation in December 2024 and January 2025, the rupee steadied following the RBI’s repo rate cut of 7 February and heavy dollar selling.
Key facts
- FPIs took out ₹2 trillion from equities after Trump’s re-election and protectionist policy signals.
- Fearing a slide past 88, RBI intervened forcefully; state-run banks sold around $12 billion on 10-11 February for it.
- Rupee rose to 86.50 on 14 February, the biggest weekly gain in 19 months.
- Traders grew wary of betting against the rupee, lowering volatility.
Liquidity response
Dollar sales squeeze rupee liquidity. In January, shortages went beyond ₹3 trillion.
| RBI tool | Amount |
|---|---|
| OMO purchases | ₹60,000 crore in three instalments |
| Variable rate repo (56 days) | ₹50,000 crore |
| Six-month forex swap | $5 billion |
The last two OMO tranches were later doubled.
Risks and projections
- Continued equity outflows could strain the current account deficit.
- A weaker yuan would give the rupee an extra cushion.
- RBI’s forward book deficit reached $80-85 billion.
- Barclays sees the rupee at 87.5 by end-March; IFA Global expects a 86.00-87.50 range.
- RBI’s likely plan: manage liquidity with OMOs and swaps rather than using reserves.
Exam angle
- Terms: OMO, VRR, forex swap, forward book, FPI.
- Repo rate cut date: 7 February.