Rupee Records Sharpest Fall Under RBI Governor Sanjay Malhotra Since Subbarao’s Tenure

Rupee Records Sharpest Fall Under RBI Governor Sanjay Malhotra Since Subbarao Era

In a reflection of persistent global and domestic challenges, the Indian rupee has registered its steepest 10-month decline under Reserve Bank of India (RBI) Governor Sanjay Malhotra, marking the most significant drop since D. Subbarao’s early tenure during the 2008 global financial crisis.

According to a comparative analysis of the first 10 months under recent RBI governors, the rupee has weakened 4.77 percent against the US dollar between December 11, 2024, and October 28, 2025. The decline mirrors a phase of heightened global uncertainty, characterised by a strong dollar, elevated US bond yields, widening India–US interest rate differentials, and geopolitical tensions.

Rupee Faces Biggest 10-Month Slide Since 2008

The last time the rupee saw a sharper fall was during Subbarao’s early tenure, when the domestic currency had plunged nearly 9 percent against the dollar between September 2008 and July 2009, amid the turmoil of the global financial crisis.

Since then, India’s currency had shown notable resilience during early leadership transitions at the central bank. For instance, the rupee appreciated 1.23 percent under Shaktikanta Das, 3.08 percent under Urjit Patel, and an impressive 11.68 percent under Raghuram Rajan — all periods marked by strong capital inflows and stable macroeconomic indicators.

Malhotra’s period, however, has coincided with foreign portfolio outflows, particularly from equities, which have intensified pressure on the rupee.

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Global Headwinds Test RBI’s Policy Approach

Governor Malhotra’s term aligns with a complex global macroeconomic landscape — from persistent dollar strength to geopolitical volatility in Europe and the Middle East. The widening India–US interest rate gap and the recent US tariff escalation on Indian exports have further strained the rupee.

The RBI has been intervening in the foreign exchange market to smoothen volatility, though the depreciation trajectory suggests a calibrated approach aimed at preserving forex reserves while maintaining export competitiveness.

As per RBI data, the central bank spent nearly $43.47 billion between December 2024 and August 2025 in its efforts to defend the rupee.

“We do not target any level or any price band. Our effort has been to manage any undue volatility, and we will continue to do so,” Governor Malhotra said during the post-policy press conference on October 1.

“There is no reason why it should impact public sentiment or confidence,” he added.

Domestic and External Pressures Compound Challenges

While global factors dominate the narrative, domestic contributors have also played a significant role in the rupee’s weakness. The RBI’s unwinding of short forward currency positions, along with foreign outflows from the equity market, has reduced dollar liquidity in the domestic system.

Adding to this, the US-imposed 50 percent tariffs on Indian goods—effective August 27, 2025—has significantly curbed export competitiveness. The tariff burden includes a 25 percent penalty on crude oil purchases from Russia, compounding the external account stress.

These developments have restricted capital inflows, dampened investor sentiment, and weakened the rupee’s resilience in recent months.

Market Outlook: All Eyes on US Data and Fed Policy

Market analysts expect the rupee’s near-term movement to remain sensitive to global cues, particularly US inflation and interest rate data.

According to Jateen Trivedi, VP and Research Analyst – Commodity and Currency, LKP Securities, traders are closely watching this week’s US CPI and Core PCE inflation numbers, which could influence both the dollar index and rupee direction.

“Support for the rupee is seen near ₹88.50, while resistance is around ₹87.50. A stronger dollar or hawkish Fed stance could further test the lower end of the range,” Trivedi added.

A Calibrated Approach Amid Policy Constraints

The RBI’s strategy under Malhotra has been measured rather than aggressive, reflecting a balancing act between currency stability and external competitiveness. Economists suggest that the central bank’s gradual approach aims to prevent abrupt volatility while ensuring that the rupee remains aligned with fundamentals.

While depreciation poses import cost pressures, particularly on energy, it also supports export growth in key sectors like IT services and manufacturing.

However, the broader macroeconomic challenge remains: sustaining investor confidence in a period when global capital is flowing toward high-yielding dollar assets.

Conclusion: Testing Times for the Rupee and the RBI

Governor Sanjay Malhotra’s tenure has begun amid one of the most volatile global phases in recent years. The rupee’s 4.77 percent fall underscores the fragility of emerging market currencies in the face of a dominant dollar and global policy divergence.

While comparisons with the Subbarao era highlight the severity of the decline, the policy environment today is vastly different—driven more by rate differentials and trade realignments than by systemic financial crises.

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