RBI may scale back currency intervention as the US-India trade deal improves sentiment

Improved foreign exchange market sentiment after the US-India trade deal could allow the Reserve Bank of India (RBI) to reduce its heavy currency interventions, experts said. | Photo credit: JOTHI RAMALINGAM B

The RBI has intervened heavily in the forex market through dollar sales in recent months, in the wake of continued FPI selling in the Indian equity and debt markets. This action has sucked rupee liquidity from the banking system.

To overcome the resulting liquidity crisis, the central bank has conducted open market operations, bought government bonds (G-Secs), USD/INR buy-sell swaps and floating rate repo auctions.

Madan Sabnavis, chief economist at Bank of Baroda, noted that the US-India rate deal will be helpful for the RBI from a currency perspective. The RBI doesn’t have to worry about that.

“One of the factors that pushed the rupee down was the absence of a trade deal. Now that there is supposedly a trade deal, this in itself will bring certainty and more FPIs will come in and the rupee should be back to the 89-90 level,” he said.

Rajani Sinha, chief economist at CareEdge Ratings, said reducing trade uncertainty is likely to support a revival in foreign investment inflows, bringing greater stability to the rupee. This could allow the RBI to scale back its currency interventions, which had intensified in recent months due to increased volatility.

Moreover, with a stable rupee, the RBI could better support the government’s borrowing plans and domestic liquidity conditions through increased volume of open market operations.

HDFC Bank’s Economic Research Team, led by Chief Economist Sakshi Gupta, said in a report that they anticipate the ‘sentiment effect’ of the US-India rate deal to ease downward pressure on the rupee in the near term and shift their forecast range for the rupee for FY27 lower.

But once the initial euphoria fades, they warned that the details of the trade deal remain important.

“We see the [USD/INR] pair between 89.00 and 91.50 during the quarter, supported by the positive trade deal announcement and an improvement in seasonal capital inflows. For FY27, we estimate a range of 90-92 for the pair, considering a moderate depreciation rate.

“This assumes that the RBI could absorb dollar flows to manage the maturity of the forward portfolio [estimated at $62 billion as of December end, can be higher if one includes the $20 billion swap for January and February] and in turn limit appreciation pressure on the rupee. Our forecasts for FY27 may be influenced by the details of the trade deal announcement,” HDFC Bank economists said.

Published on February 3, 2026