In the fiscal year 2025-26, the Indian rupee experienced a significant depreciation of 10% against the US dollar, marking one of the worst performances among emerging markets. In March alone, the rupee fell by 4.24%, the steepest monthly decline in six years, briefly crossing the 95 mark against the dollar. This depreciation prompted the Reserve Bank of India (RBI) to intervene aggressively, selling $30.5 billion from its reserves to stabilize the currency. Additionally, the RBI capped banks' net open rupee positions and banned non-deliverable forward (NDF) contracts, leading to the rupee's largest single-day gain in over 12 years.

The rupee's weakness is attributed to a record outflow of ₹1.6 trillion from foreign institutional investors, driven by geopolitical tensions and concerns over India's current account deficit. The RBI's actions, while necessary, raise questions about the suppression of price signals from the NDF market, which plays a crucial role in price discovery. Experts suggest that instead of permanently gagging offshore signals, efforts should focus on deepening the onshore market and harmonizing tax treatments to attract non-resident participation. The rupee's depreciation may be inevitable, but it can maintain export competitiveness and act as a shock absorber for the economy. To ensure currency stability, India must enhance foreign direct investment and improve macroeconomic fundamentals.