NEW DELHI: The Reserve Bank of India is facing a difficult balancing act as it seeks to support the weakening rupee without hurting economic growth. The rupee has fallen about six per cent this year amid capital outflows, prompting the central bank to intervene in currency markets and tighten liquidity.
The RBI has already raised its policy rate, while officials are weighing whether further increases may be required if inflation remains above target. The central bank’s challenge is sharper because higher borrowing costs could affect households and smaller businesses.
At the same time, a prolonged currency slide could increase imported inflation. Despite these pressures, India’s economy recorded strong growth, leaving policymakers caught between defending the currency and sustaining momentum.