The Indian rupee fell to 96.43 per U.S. dollar on Tuesday, its weakest level in over two months, as persistent equity outflows pressured the currency ahead of the Reserve Bank of India's monetary policy decision Wednesday.
Traders are pricing in at least a 25 basis point hike from the RBI, but market chatter suggests appetite for a more aggressive tightening to stanch capital flight and defend the currency. The differential between India's policy rate and yields available offshore has narrowed, reducing the carry advantage that typically supports rupee demand from foreign investors.
Equity fund outflows have been the primary catalyst for the rupee's weakness. State-run banks have stepped in with dollar sales to limit further deterioration, but these interventions have only slowed—not stopped—the slide.
The 96.43 level tests a critical support zone. A breach would put the RBI under pressure to deploy additional reserves or signal a more hawkish stance than currently priced. Wednesday's policy decision will be the market's first hard read on how aggressively the central bank is willing to fight currency depreciation.
