Impact of RBI's Currency Management

The Reserve Bank of India (RBI) has been intervening in the currency market to manage the rupee-dollar exchange rate, which has raised concerns among economists regarding potential overmanagement. Historically, the RBI allowed the rupee to find its own value unless significant economic crises arose, such as the 2008 financial crisis. However, since 2019, it has adopted a more aggressive approach by using foreign exchange reserves to stabilize the rupee during calmer times, including a substantial $105 billion expenditure from its reserves between February and October 2022 to counteract pressures from rising U.S. interest rates. This intervention has led to an overvalued rupee, making Indian exports less competitive internationally, as foreign buyers face increased costs in purchasing Indian goods and services.