Mumbai: The Indian rupee entered the new year under close watch from currency traders as recent movements continue to be driven largely by strong intervention from the Reserve Bank of India rather than regular market forces.
The rupee ended the last trading session of 2025 at around 89.87 against the US dollar, marking its weakest annual performance in nearly three years. Dealers say heavy dollar selling by the Reserve Bank of India in December played a decisive role in keeping the currency from sliding further, but it also left markets unsure about the rupeeās true direction.
With the start of 2026 marked by thin trading due to the New Year holiday, traders are now looking for fresh signals. Many expect the rupee to remain range bound in the near term as the central bank continues to smooth volatility while underlying pressures remain.
Market participants point to persistent challenges such as capital outflows, a wide trade deficit and steady demand for dollars from importers. These factors have kept the rupee under pressure despite repeated central bank action.
Recent sessions showed a mild recovery, with the rupee firming slightly on continued RBI support and softer global commodity prices. Forward market indicators also suggest that near term panic has eased, even though caution remains high.
Global factors are also in focus. The direction of the US dollar and future policy signals from the Federal Reserve are expected to influence emerging market currencies, including the rupee, in the coming weeks.
Analysts say the Reserve Bank of India is unlikely to defend any specific exchange rate level but will continue to intervene to prevent sharp swings. For now, traders expect the rupee to trade within a narrow band unless there is a major shift in global markets or domestic capital flows.
As 2026 begins, the mood in the currency market remains guarded, with stability relying heavily on central bank action rather than a strong turnaround in fundamentals.