The Reserve Bank of India is unlikely to hike interest rates even as concerns over the rupee weakness persist. As per sources to Reuters, India’s central bank does not see interest rate hikes as the best way to defend the weak rupee, they reiterate that inflation, not the currency will pave way for the policy on borrowing costs.
The Reserve Bank of India has other strategies that can be deployed, according to sources familiar with the matter, options such as dollar deposit schemes for non-resident Indians and tax tweaks for debt investors are also being brainstormed and could be used.
While all options are being explored, sources told Reuters that options are under consideration and in coordination with the government, “There doesn’t seem to be an urgent need for the central bank to jump into rate hikes” one source told Reuters.
This opinion at the moment puts policymakers at odds the rupee weakness persists on back of the oil price shock the world has witnessed due to the Iran conflict. Some experts fear that rate hikes will do little to stabilise the currency and could in fact add to the risks and damage the already slowing growth further in the country.
The rupee has consistenly weakened since the West Asia war began on February 28, 2026 and the spike in oil prices has
The Indian rupee has weakened sharply since the West Asia conflict escalated in late February 2026, driven mainly by soaring crude oil prices, foreign fund outflows, and rising demand for the U.S. dollar. Since the conflict began, the rupee has fallen nearly 6% against the dollar, making it one of Asia’s weakest-performing currencies this year.
The rupee was around 91.47 per dollar on March 2, shortly after tensions intensified, before sliding to successive record lows through March, April and May. By May 22, the currency had weakened close to the 97-per-dollar mark before recovering slightly due to intervention by the Reserve Bank of India.
A key reason behind the decline is India’s dependence on imported crude oil. Brent crude prices have surged more than 50% since the conflict began, at one point nearing $110 per barrel, worsening India’s trade deficit and inflation outlook. Foreign investors have also pulled over $20 billion from Indian equities during the period, increasing pressure on the rupee
RBI May Avoid Rate Hike Despite Rupee Weakness, Inflation Key Focus: Report
