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The Indian rupee is weakening as the Reserve Bank of India (RBI) struggles with the “impossible trinity”—balancing monetary policy independence, open capital flows, and exchange rate stability. With inflation control and capital mobility prioritized, the rupee has become the adjustment tool, reflecting India’s pragmatic approach to global economic pressures.
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Key Highlights
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The Impossible Trinity Explained: Economists describe the “impossible trinity” (or macroeconomic trilemma) as the challenge of simultaneously maintaining independent monetary policy, free capital flows, and a stable exchange rate. No country can achieve all three at once.
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RBI’s Current Dilemma: India wants to keep interest rate autonomy to manage inflation, allow capital flows to attract foreign investment, and stabilize the rupee. But something must give. Right now, the RBI is letting the rupee weaken rather than sacrificing monetary control or capital mobility.
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Policy Shifts Under New Leadership: Governor Sanjay Malhotra has loosened the RBI’s tight grip on the rupee, aligning it more with regional currencies. While interventions continue to prevent excessive volatility, the central bank is prioritizing inflation control and export competitiveness.
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Global Context: Rising oil prices, slowing global growth, and shifting investor flows have added pressure. In 2025, the rupee crossed ₹90 per U.S. dollar, reflecting India’s evolving exchange rate regime and the IMF’s reclassification of India’s currency management.
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Sacrificial Lamb: Analysts describe the rupee as the “sacrificial lamb” in RBI’s balancing act, absorbing shocks while India maintains policy independence and open capital markets.
Why It Matters
The rupee’s weakness is not simply a sign of economic fragility, it reflects India’s strategic choice in navigating global pressures. By allowing the currency to adjust, the RBI preserves its ability to fight inflation and sustain capital inflows. For businesses, this means higher import costs but stronger export competitiveness. For investors, it signals India’s commitment to responsible monetary policy even at the cost of currency depreciation.
Sources: The Hans India, ETBFSI (Bloomberg), DSIJ Intelligence
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