According to informed sources, the Reserve Bank of India is evaluating all available measures to stabilize the rupee's exchange rate, including raising interest rates, expanding currency swap arrangements, and raising U.S. dollars from overseas investors.

They stated that following the rupee's recent decline to near 97 per U.S. dollar, hitting a new low this week, senior officials at the central bank, including Governor Sanjay Malhotra, have held a series of internal meetings to discuss potential courses of action. The sources requested anonymity as the discussions are not public.

One source mentioned that one option under consideration is an interest rate hike. The next scheduled monetary policy meeting is on June 5, although the RBI conducted an unscheduled rate adjustment in May 2022.

Indian government bonds reversed earlier gains to trade lower; yields had initially fallen by 6 basis points in early trading following the central bank's announcement of liquidity injection measures. The rupee appreciated by 0.5% against the U.S. dollar to 96.33.

Another informed source indicated that other potential measures include raising dollar funds abroad through a deposit scheme targeting the Indian diaspora and issuing U.S. dollar-denominated sovereign bonds; the latter would require government approval.

These individuals familiar with the central bank's thinking also noted that policymakers are increasingly recognizing that the rupee's decline is proceeding faster than previously anticipated. They added that the decision-making layer believes India's economic fundamentals remain strong, the banking system is robust, and this strength is not reflected in the current exchange rate level.

The Reserve Bank of India did not respond to an email seeking further comment on the matter.