Which will be RBI's top priority over MPC, the INR or the repo rate?

Indian rupee has depreciated to a record low on December 1 despite the a very good GDP print in the second quarter of the current financial year, but experts believe that the central bank would shield the currency from the free collapse amid tariffs uncertainty. Experts said that foreign fund outflows, rising demand for dollars from importers, and delays in the India-US trade accord put tremendous pressure on the rupee. The rupee sank to 89.76 against the US dollar, dropping above its previous record low of 89.49 recorded almost two weeks back. “RBI is very well aware of the depreciation and may protect the weaker rupee level. According to Dilip Parmar, a foreign exchange analyst at HDFC Securities, the central bank has never set a target and has previously stated that the exchange rate is driven by the market and intervenes to reduce volatility. Furthermore, when external demands increased, RBI's FX strategy changed, according to Abhilash Koikkara, EVP-Head Forex & Commodities at Nuvama Professional Clients Group. Through the summer and early autumn, it interfered frequently to support the currency, but the cost of defending a single level grew steadily greater. The Indian rupee’s decline to a fresh record low on December 1 has surprised many, especially since it came at a time when India reported strong GDP growth for the second quarter. Analysts point out that the fall is not due to domestic weakness but rather external pressure, including persistent foreign fund outflows and concerns surrounding unresolved tariff issues with the United States. The delay in finalising the India-US trade agreement has created additional uncertainty, prompting investors to remain cautious and move away from emerging market assets. According to market experts, the increased demand for dollars from importers also played a major role in intensifying pressure on the rupee. With expectations of further depreciation, many importers rushed to hedge their positions, raising the overall demand for the greenback. As a result, the rupee slipped to 89.76 against the US dollar, surpassing its previous all-time low of 89.49 recorded just two weeks earlier. Despite the sharp decline, analysts believe the Reserve Bank of India will act to prevent any disorderly movement in the currency. While the RBI maintains that exchange rates are market-driven and it does not target specific levels, it has historically intervened during periods of high volatility. Experts like Dilip Parmar of HDFC Securities say the central bank is fully aware of the situation and will likely step in to stabilise the currency if conditions worsen. However, some experts note that defending the rupee has become more challenging. The RBI had to intervene frequently during the summer and early autumn as external pressures intensified, but the cost of maintaining certain levels grew significantly. According to Abhilash Koikkara of Nuvama, the central bank has now adopted a more flexible approach, choosing to intervene selectively rather than aggressively. Even so, most analysts expect the RBI to continue managing volatility and preventing a steep, uncontrolled fall in the rupee.