Why the rupee keeps sliding despite RBI's $675bn arsenal

The Indian rupee is hovering near an all-time low against the US dollar, losing nearly 2% in July 2026 and posting the weakest performance among its Asian peers. On July 20, the currency slipped to 96.4575 per dollar, within striking distance of the record low of 96.9650 touched in late May. Behind the slide, a quiet but consequential debate inside the Reserve Bank of India is shaping how far policymakers will let the currency fall.

Three sources familiar with the central bank's discussions told Reuters that a divergence of views has emerged over how aggressively to intervene. That split has left traders struggling to gauge how much weakness the RBI is willing to tolerate.

Two camps inside the RBI

Governor Sanjay Malhotra and Deputy Governor Poonam Gupta, both appointed from outside the RBI, favour a market-driven approach. They want the rupee to adjust to macroeconomic shifts while intervening mainly to curb excessive volatility. Malhotra signalled this in May 2026 when he committed to taking “necessary action” to maintain orderly markets, stopping short of promising to defend any particular level.

RBI veterans in market operations disagree. They want more aggressive intervention to discourage one-way bets against the rupee before they gather momentum.

The current leadership believes reserves should be conserved. One source said the RBI views reserve adequacy more conservatively than headline figures suggest. India's reserves stand at $675.2 billion, but analysts estimate usable reserves at roughly $460 billion after adjusting for gold and forward positions.

Oil, bears, and dollars that fell short

Rising crude prices are a central pressure point. India is one of the world's largest crude importers, and higher oil widens the trade deficit, adding downward force on the rupee. This month, the rupee has lagged other oil-sensitive regional currencies including the Indonesian rupiah, the Philippine peso, and the Thai baht.

The RBI has not been absent. It sold dollars to support the rupee as crude prices surged. India also rolled out measures to attract dollar deposits from its diaspora and draw in foreign debt inflows, pulling in more than $20 billion in about a month. Yet the dollar surge did little to halt the decline.

Bearish sentiment has regrouped. Short positions on the rupee picked up in the first 10 days of July after falling to an eight-month low in June, per a Reuters FX poll. Two Singapore-based hedge fund managers told Reuters they reinstated bearish rupee positions after the currency broke through levels they had expected the RBI to defend.

What comes next

The RBI's limited interventions have sown confusion. If the internal debate drags on while the currency keeps weakening, the central bank may be forced into action at a less favourable level.

For now, the rupee's trajectory depends as much on a policy argument inside the RBI as it does on the price of oil or the strength of the dollar. Markets are watching both.