Mumbai, Monday, 20 October 2025: The Indian rupee rises as state run banks sold dollars, likely acting for the Reserve Bank of India (RBI), strengthening the currency to 87.78 against the US dollar from 87.9750, according to market traders.
This move balanced importer demand and lacklustre Asian peers. This development holds significance for South Asia. A stronger Indian rupee aids trade stability with neighbours like Nepal and Bhutan, where the currency facilitates cross-border transactions. It also influences remittance flows and investment in the region, supporting economic resilience amid global volatility.
RBI Intervention Fuels Rupee Rally
The RBI intervention rupee rally gained momentum last week. Traders reported aggressive dollar sales by the central bank on at least two occasions to prevent the rupee from breaching 88 against the US dollar. These actions flushed out speculative positions and improved the near-term outlook. A currency trader at a private sector bank said: “There is this sense that the RBI won’t want to let it slip past 88 just yet to validate the heavy intervention we saw last week.”
State-run banks played a key role in the Indian rupee rises state run banks dynamic. They provided the post-open lift through dollar sales, reinforcing the RBI’s anchor role. Equity inflows bolstered sentiment, with overseas investors net buying over USD 1 billion in Indian equities last week. However, corporate dollar demand from importers limited gains. This demand stemmed from ongoing trade needs, capping the extent of the rupee’s advance despite supportive measures.
Indian Rupee Strengthens in October 2025
The Indian rupee strengthens October 2025 trend began earlier in the month. On 1 October 2025, the RBI maintained the repo rate at 5.50 per cent with a neutral stance. The central bank revised India’s GDP growth forecast for FY 2025-26 to 6.8 per cent from 6.5 per cent, citing resilient domestic demand. In the policy statement, the RBI noted the rupee’s two-way movements amid global volatility but highlighted its status as one of the least volatile emerging market currencies.
Strong fundamentals, including a narrowed current account deficit to 0.2 per cent of GDP in Q1 FY 2025-26, supported this stability. Services exports grew in double digits, with real exports of goods and services up 6.3 per cent in Q1. Remittances reached USD 35.3 billion, keeping India as the world’s top recipient. Gross FDI inflows stood at USD 37.7 billion during April-July 2025, with net inflows at USD 10.8 billion.
Forex reserves provided a buffer. As of 3 October 2025, reserves totalled USD 699.96 billion, down slightly from USD 700.24 billion the prior week. These elements contributed to the Indian rupee rises state run banks scenario observed on 20 October 2025. Market data showed the rupee opening at 87.9350 before advancing.
Background on Rupee Performance
The rupee faced pressures earlier in October 2025. On 15 October 2025, it climbed 0.8 per cent to close at 88.0750 against the US dollar, its strongest daily performance since June. This followed dovish signals from US Federal Reserve Chair Jerome Powell, cooling the dollar.
By 17 October 2025, the USD/INR rate hit 88.0030, up 0.01 per cent from the previous session. Over the past month, the rupee strengthened 0.23 per cent overall. The RBI’s efforts align with broader goals. On 1 October 2025, the central bank proposed measures to boost the rupee’s international usage. These include allowing Indian banks to extend rupee-denominated loans to non-residents in Bhutan, Nepal, and Sri Lanka for cross-border trade.
RBI Governor Sanjay Malhotra stated: “We have been making steady process in this regard.”
Deputy Governor T Rabi Sankar added: “The objective is to minimizes the use of crossing currencies to get rates. That’ll help both our currency and the other currency.” Further proposals involve setting reference rates for currencies of major trading partners, like the Indonesian rupiah and UAE dirham, and permitting foreign entities to invest surplus rupee balances in corporate bonds and commercial papers.
These steps build on earlier initiatives, such as allowing investments in central government securities in August 2025. They aim to enhance the rupee’s global role, reducing reliance on the US dollar. In January 2025, the RBI permitted exporters to open foreign currency accounts abroad for proceeds realisation. This facilitated trade settlements in Indian rupees (INR), promoting efficiency.
The RBI’s October 2025 policy also issued directions effective from 1 October, including guidelines on banking, forex, and consumer protection. Drafts sought public feedback on additional measures.
What’s Next
Market participants expect the rupee to take cues from ongoing RBI actions. Bond yields may stay in the 6.47 per cent to 6.53 per cent range this week due to limited triggers.
US developments, including comments from President Donald Trump on Indian Prime Minister Narendra Modi’s assurances regarding Russian oil imports, showed minimal impact on Monday’s trading. Asian currencies remained subdued, adding context to the rupee’s relative strength. Traders anticipate importer demand to persist, potentially testing the RBI’s resolve.
Forward-looking, the Indian rupee rises state run banks support could sustain if equity inflows continue and global dollar pressures ease. However, sustained RBI intervention rupee rally may be needed to counter external risks.
Published in SouthAsianDesk, October 20th, 2025
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