RBI‘s Bazooka: The good, the big and the tricky

Research evidence excerpt

RBI‘s Bazooka: The good, the big and the tricky

J P M O R G A N Asia Pacific Economic Research,

Rates & FX Strategy

07 July 2026

RBI’s Bazooka: The good, the big

and the tricky

The Context Emerging Markets Asia, Economic

and Policy Research

The Indian Rupee was under sustained pressure for almost two years despite a very

Sajjid Z Chinoy

benign current account deficit because, as we have previously discussed, capital

(91-22) 6157-3386

flows into India had progressively dried up. The result was two consecutive BoP sajjid.z.chinoy@jpmorgan.com

deficits – the first such occurrence in decades – which forced the Rupee to be the JPMorgan Chase Bank, N.A., Mumbai Branch

first line of defense, appropriately so, in our view. Michael J Loh AC

(65) 6882-1783

The Middle Eastern conflict served to throw fuel on the fire. Surging crude and michael.loh@jpmorgan.com

fertilizer pressures meant the current account deficit was poised to balloon. JPMorgan Chase Bank, N.A., Singapore Branch

Meanwhile, heightened geopolitical uncertainty sparked portfolio equity Toshi Jain

outflows, compounding the capital flow challenge. The implication: the perceived (91-22) 6157-3387

toshi.jain@jpmorgan.com

BoP deficit widened dramatically and pressures on the Rupee compounded JPMorgan Chase Bank, N.A., Mumbai Branch

manifold.

Some degree of depreciation was inevitable, especially since changing

fundamentals argued for a more depreciated equilibrium real effective exchange

rate. But both the pace and quantum of Rupee depreciation threatened to make it

diverge from fundamentals and spawned a self-fulfilling spiral. Because the Rupee

was the only instrument initially being deployed to close a large (perceived) BoP

gap, expectations of rapid and sustained depreciation took hold. In turn, corporates,