Mumbai, October 3, 2025 – As the Indian Rupee faces renewed pressure from a volatile global landscape marked by geopolitical uncertainties and fluctuating energy prices, the Reserve Bank of India (RBI) has introduced a comprehensive set of reforms to enhance the currency's international role and shield the economy from external shocks. Unveiled during the central bank's October monetary policy meeting, these initiatives aim to accelerate the Rupee's globalisation, fostering greater use in cross-border transactions and reducing dependency on the US dollar.
RBI Governor Sanjay Malhotra, in his policy statement on October 1, highlighted the need for these steps amid a challenging external environment. "The Indian economy remains resilient with strong fundamentals, but we must proactively promote the Rupee's internationalisation to mitigate volatility risks," Malhotra said. The Monetary Policy Committee (MPC) maintained the repo rate at 5.50% while adopting a neutral stance, signaling vigilance without immediate tightening.
Central to the package is the authorisation for Indian banks and their overseas branches to extend Rupee-denominated loans to non-residents in neighbouring countries—Bhutan, Nepal, and Sri Lanka—for cross-border trade purposes. This is poised to streamline regional commerce, where India exports over $25 billion annually to these nations, potentially boosting INR settlements and curbing conversion costs.
Further bolstering liquidity, surplus funds in Special Rupee Vostro Accounts (SRVAs)—mechanisms for foreign entities to hold INR for trade—can now be invested in Indian corporate bonds and commercial papers, in addition to government securities. This expansion, building on earlier 2025 directives, is expected to attract more foreign inflows and deepen market participation.
To aid transparent pricing, the RBI will publish reference rates for additional trading partner currencies, including the Indonesian Rupiah and the United Arab Emirates Dirham, extending beyond the current basket of major currencies like the US dollar and euro. These rates will facilitate direct INR pairings, simplifying hedging for exporters and importers.
The measures come as the INR hovers near 83.75 against the dollar, pressured by a widening trade deficit and global risk aversion. India's forex reserves remain ample at $702 billion as of late September, providing over 11 months of import cover and enabling the RBI to intervene via state-run banks to temper sharp declines. The current account surplus for the April-June quarter stood at 0.2% of GDP, supported by robust remittances and services exports.
Navigating Global Turbulence
These reforms align with broader efforts to insulate India from international headwinds, including US Federal Reserve policy shifts and Middle East tensions driving up oil prices. Economists praise the RBI's balanced approach, noting it could lower transaction frictions and enhance Rupee's appeal in bilateral trade pacts.
"By enabling Rupee lending and expanding investment avenues, the RBI is laying the groundwork for a more multipolar currency ecosystem," said Radhika Rao, an economist at DBS Bank. Initial market response was positive, with the INR appreciating marginally to 83.65 and benchmark indices edging higher.
Implementation guidelines are slated for release soon, with the RBI monitoring progress through quarterly reviews. As India eyes sustainable growth projected at 6.8% for FY26, these steps underscore a strategic pivot toward financial sovereignty in an unpredictable world.
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