Can India Really Save the Rupee Without Raising Interest Rates?

India’s rupee has been under serious pressure, and the RBI recently announced a package of measures to attract dollars back home. The plan avoids capital controls, and instead offers state-run firms and banks a discount on hedging costs to borrow overseas, expands bond market access for foreign investors, and offers tax breaks on government securities. Economists estimate this package could bring in between $30 and $50 billion in inflows, giving the rupee some breathing room.

But a truce is not the same as peace. The deeper problem is that India attracted just $3 billion in net annual foreign direct investment even as the economy grew at 7.8% in the March quarter. Foreign portfolio investors have already pulled out over ₹2.3 lakh crore in the first five months of 2026 alone, which already exceeds the entire outflow of 2025. The rupee has slid to around ₹95.74 per dollar as of early June 2026, making it one of the weakest performers among Asian currencies, and foreign investors face added currency losses when they repatriate returns.

The real fix, as many economists argue, is higher interest rates. With the US Fed’s target range sitting at 3.5%–3.75% and the RBI’s repo rate held at 5.25%, the interest rate premium India offers global investors is shrinking. In 2013, Governor Raghuram Rajan raised rates to 8% and held them there for a year to restore credibility, and it worked. India today is choosing low rates and subsidised dollar borrowing instead, which passes the cost on to taxpayers through reduced RBI dividends to the government. Until India addresses this structural gap, the rupee may stay calm for a season, but lasting stability will remain elusive.