RBI Weighs Options Including Rate Hike to Steady a Falling Rupee

The Reserve Bank of India is examining several options to stabilise the rupee after it weakened to nearly 97 against the US dollar, a fresh low. The options reportedly under discussion include a hike in the policy interest rate, more dollar-rupee swaps, and raising dollars from overseas investors.

The rupee has come under pressure from a combination of a stronger dollar, foreign investors pulling money out of Indian markets, and higher global crude oil prices linked to tensions in West Asia. A weaker rupee makes imports — especially oil — more expensive and can add to inflation.

The RBI Governor has indicated the central bank will act to curb excessive speculation in the currency, while some officials feel the rupee may be undervalued after the recent fall. A rate hike would support the currency by making rupee assets more attractive, but it also raises borrowing costs in the economy.