The Rupee, the Fed, and India's External Balancing Act
Dollar strength and volatile capital flows are forcing RBI to choose between growth support and currency stability — with no painless option.
Portfolio investors returned to Indian equities in the second quarter, but FDI in manufacturing remained patchy. That asymmetry keeps the rupee sensitive to every Fed statement and every oil-price spike.
RBI’s intervention has been surgical rather than dramatic — selling dollars into strength, rebuilding reserves quietly. The risk is that growth-sensitive sectors, especially MSME exporters, absorb the adjustment through tighter credit long before consumers notice.