Important StoriesPassenger vehicle dispatches rise 21.8% at 4.54 lakh units in Sep: SIAM dataSmartphone shipments crash 22% in worst quarter ever: IDCCCEA approves strategic restructuring of IDBI Bank, govt & LIC to get over ₹52,000 croreIDBI Bank stake sale to push MCR receipts beyond ₹88,000 crore, providing fiscal reliefIndia plans BS-VII emission norms for new cars and SUVs from April 2029Follow UsFOLLOW US ON WHATSAPPHomeGO BACK TO HOME THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. THIS AD SUPPORTS OUR JOURNALISM. SUBSCRIBE FOR MINIMAL ADS. India may need rate hikes, tax cuts to buoy rupee, analysts say The RBI can raise its emergency lending rate for banks, making funds more expensive and tightening liquidity to support the rupee By Bloomberg Updated - October 15, 2026 at 12:18 PM.×ShareWhatsAppXFacebookLinkedInMessengerRedditMailhttps://www.thehindubusinessline.com/economy/india-may-need-rate-hikes-tax-cuts-to-buoy-rupee-analysts-say/article71586564.eceCopy India’s central bank has mounted its strongest defense of the rupee in more than a decade, and said it’s not done yet.

The Reserve Bank of India’s measures helped the currency rebound from a near record low but analysts are questioning how long the relief can last given India’s heavy dependence on energy imports. The central bank would consider further measures, if needed, to curb speculative trading in the market, Governor Sanjay Malhotra said Tuesday.

Here’s a look at further steps Indian authorities can consider:

The central bank last week raised interest rates for the first time in nearly four years and signaled further hikes. Unlike some of its Asian peers, the RBI has refrained from using monetary tightening to support the currency, but rising price pressures and a narrowing yield gap with the US are giving it reasons to turn hawkish.

The rupee continues to face a capital inflow problem, with a sharp drop in net foreign direct investment causing the currency to be far more dependent on volatile foreign portfolio inflows than in the past, according to MUFG Bank Ltd.

“Higher rates are one way to resolve the fundamental imbalance and is one key reason why we are forecasting RBI to hike rates further,” said Michael Wan, senior currency analyst at the lender.

The RBI can raise its emergency lending rate for banks, making funds more expensive and tightening liquidity to support the rupee. The so-called Marginal Standing Facility currently stands 25 basis points above the key policy rate.

The RBI last raised the MSF rate independently of the repo rate to defend the rupee in 2013. During the taper tantrum, the rate was raised by 200 basis points, widening the spread over the policy rate. The measure briefly slowed the rupee’s slide.

“Enhanced corridor on the upper side by increasing MSF rate will result in higher price of the rupee,” said Soumya Kanti Ghosh, chief economic adviser at State Bank of India.

A cut in the long-term capital gains on stocks could bring inflows and support the rupee, according to IIFL Capital.

Foreigners have been relentless sellers of Indian stocks with net outflows exceeding $30 billion so far this year as investors shifted funds toward markets offering greater exposure to the artificial-intelligence trade.

Finance Minister Nirmala Sitharaman said at the Bloomberg New Economy Forum on Tuesday that “the long-term capital gains tax is something on which a lot of people have been commenting,” but she would “tread cautiously” on the question of taxation very close to the budget.

The central bank should also look at allowing a more flexible exchange rate, according to Nomura Holdings Inc. and Emkay Global Financial Services.

“A durable solution requires greater exchange-rate flexibility, allowing the rupee to adjust gradually rather than through episodic corrections,” said Madhavi Arora, chief economist at Emkay.

The central bank has been intervening in the currency market in recent weeks to check rupee volatility. The RBI has repeatedly said that it doesn’t target a specific level for the currency.

Authorities could further shorten the deadline for exporters to bring their overseas earnings back to India to six months, in line with the typical credit period for export payments, according to a State Bank of India note.

The RBI had cut the timeline to nine months in June after extending it to 15 months last year when the US imposed punitive tariffs on India.

Raising domestic fuel prices to reduce fiscal pressure and consumer demand for oil is an option, Nomura economists including Sonal Varma wrote in a note.

Such as move can curb fuel demand over time, potentially reducing India’s oil-import bill and demand for dollars, thereby supporting the rupee.

India’s state run refiners that command over 90% of the market have kept diesel and gasoline prices unchanged since May 25. Private retailers, however, have raised prices. State refiners are losing 5.3 billion rupees daily on discounted fuel sales, according to ICRA Ltd.

More stories like this are available on bloomberg.com

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