The Reserve Bank of India (RBI) has received strong endorsement from the World Bank for its handling of the rupee’s exchange rate, with officials praising its consistent approach and expressing optimism about India’s ability to withstand ongoing global economic pressures.
Aurélien Kruse, the World Bank’s Lead Country Economist for India, noted that the RBI has maintained a steady policy of managing short-term exchange rate volatility without attempting to influence the broader trajectory of the currency. He emphasised that such an approach is appropriate during periods of unpredictable shocks, where nonlinear effects can amplify risks. While clarifying that it is not his role to directly assess RBI policy, Kruse remarked that the central bank’s strategy “makes a lot of sense”.
The rupee faced significant pressure in recent months due to multiple global developments. Delays in concluding an India–United States trade deal triggered foreign investment outflows in the latter half of 2025, pushing the currency beyond 90 and 91 against the US dollar in December. A subsequent surge in risk aversion, driven by the United States and Israel’s conflict with Iran, led to a sharp depreciation, with the rupee breaching 92, 93, 94, and 95 per dollar in quick succession during March. However, it closed at 92.66 per dollar on Thursday, recovering in recent days following RBI measures to curb speculative activity.
RBI Governor Sanjay Malhotra reiterated that the central bank’s exchange rate policy remains unchanged. He stated that interventions in the foreign exchange market are solely aimed at smoothing excessive and disruptive volatility, without targeting any specific exchange rate level or band.
To stabilise the currency, the RBI has undertaken foreign currency sales in both spot and forward markets, countering intense pressure caused by record outflows from foreign investors. In March alone, Foreign Portfolio Investors (FPIs) sold $12.7 billion worth of Indian equities—the highest monthly outflow on record.
Kruse’s remarks came shortly after the World Bank revised India’s GDP growth forecast upward by 30 basis points to 6.6 per cent for the current fiscal year. It also projected retail inflation to more than double to 4.9 per cent. While this inflation estimate is 30 basis points higher than the RBI’s projection of 4.6 per cent, the World Bank’s growth forecast is lower than the RBI’s estimate of 6.9 per cent by the same margin.
A key divergence in projections stems from assumptions about crude oil prices. While the RBI has factored in an average of $85 per barrel for 2026–27, the World Bank has adopted a higher range of $90–100 per barrel, according to Franziska Ohnsorge, Chief Economist for the South Asia Region.
Despite ongoing tensions in West Asia, the World Bank upgraded its growth outlook due to several positive factors, including India’s trade agreements with the European Union in January and the United States in February, as well as robust economic performance in the July–September and October–December quarters of 2025. Kruse noted that these strong growth indicators prompted a reassessment of earlier projections, although he cautioned that significant downside risks remain.
Looking ahead, the World Bank expects India’s GDP growth to rise to 7.2 per cent in 2027–28 before moderating slightly to 7 per cent in 2028–29, as outlined in its latest India Development Update report.
The institution also highlighted that India entered the current crisis from a position of strength, supported by low inflation, a minimal current account deficit, and solid growth. Although government debt and fiscal deficit levels remain elevated, the fact that most debt is denominated in domestic currency provides an added layer of resilience.
Kruse underscored that these strong economic buffers explain the World Bank’s optimism regarding India’s capacity to absorb external shocks under baseline conditions. He also commended Indian authorities for maintaining a balanced approach—managing supply conditions without resorting to heavy rationing, while stabilising early volatility through measures such as keeping retail fuel prices steady to avoid sharp economic disruptions.
On private investment, Kruse observed that subdued activity is unsurprising given prevailing uncertainties, adding that investors are likely adopting a wait-and-watch approach until the global situation becomes clearer.