DEFENDING THE RUPEE: Capital outflows, the cost of hedging and the limits of the RBI’s measures

This report analyses the foreign-exchange interventions used by the Reserve Bank of India (RBI) to defend the rupee against sustained foreign portfolio outflows and market pressures. It tracks key macroeconomic metrics, including spot dollar sales, foreign-currency deposits, forward market commitments, and surging hedging costs. While regulatory measures and reserve deployments provide immediate relief, they leave underlying structural pressures unresolved. Our analysis evaluates how long the RBI can sustain this defensive stance and what adjustments—from trade flows to capital recovery—will ultimately be required to restore balance.