To effectively defend the struggling rupee, India's central bank may need to refer to its 2013 taper tantrum playbook and other balance-of-payments crises.
According to Bloomberg News on Thursday, the Reserve Bank of India, led by Governor Sanjay Malhotra, is thinking about a number of ways to stabilise the currency, such as increasing interest rates, doing more currency swaps, and taking steps to raise dollars from foreign investors.
After the rupee fell to a historic low of around 97 per dollar this week, increasing import costs and further undermining investor confidence, the urgency has increased. The RBI's top objective right now is to stop more depreciation.

According to Sajjid Chinoy, India economist at JPMorgan Chase Bank, "it's important to avoid a self-fulfilling spiral, where a weaker rupee encourages more hedging, which puts more pressure on the currency and encourages even more hedging." "To break the cycle, capital augmentation is required, and if it is done, it should be done in scale to change expectations in the FX market."
When the Federal Reserve announced in 2013 that it would start reducing quantitative stimulus, India had a similar problem. As a result, capital left emerging countries, causing the rupee to depreciate from roughly 55 per dollar in May to over 69 by August.

In response, the RBI tightened liquidity and increased the marginal standing facility rate by 200 basis points under the direction of Governor D. Subbarao. The rupee's decline was momentarily halted by these actions, but it persisted until recently appointed Governor Raghuram Rajan announced a foreign-currency non-resident deposit program in September that raised almost $30 billion.
According to economists, the RBI could now need to think about adopting a similar approach, which might involve pushing banks to issue bonds abroad. State Bank of India generated more than $4 billion and $5.5 billion through overseas bond issuances in 1998 and 2000, respectively, to bolster finance following US sanctions imposed after India's nuclear tests, despite the fact that India has never sold sovereign foreign-currency debt.

However, given the significant increase in interest rates around the world, any deposit scheme or bond issuance will be quite expensive. According to Madhavi Arora, an economist at Emkay Global Financial Services Ltd., banks that offered deposit rates of 3.5% to 5% in 2013 would now probably need to pay at least 8% to 9% to draw in the money.
According to persons involved with the talks, bankers have requested subsidised swap rates in recent meetings with the RBI in order to make such deposits feasible. The RBI did not respond to an email sent to them right away.According to Anubhuti Sahay, an economist at Standard Chartered Plc, "a combination of measures, such as limiting import demand and incentivising dollar raising via tools like rate hikes can help break the negative feedback loop between currency market expectations and the pace of rupee depreciation."
However, there is a chance that employing higher interest rates to protect the rupee could harm the economy more broadly while providing the currency with little assistance. "It won't work now; it didn't work in 2013," Arora stated.
Attracting and keeping long-term capital inflows is ultimately more difficult. This year, investors have sold Indian equities; foreign portfolio withdrawals in 2026 have already surpassed the $19 billion record set last year.It will need "structural reforms, which remains the critical test" to try to stop this thinning of capital flows, according to Sahay of Standard Chartered.