Rupee @ ₹90/$: Was the RBI’s Rate Cut Bravery, Optimism, or Calculated Bravura?

The Indian rupee touched ₹90 per dollar last week - a level popularly called the “nervous nineties,” borrowing from cricket’s tense moments. Just as the market was absorbing this currency weakness, the RBI surprised everyone with a 25-bps rate cut in the December policy.

Cutting rates when the currency is sliding is unusual. It risks weakening the rupee further. Yet, the RBI chose to go ahead. Was this bravery? Mere optimism? Or a well-calculated move that looks risky from the outside but has a deeper logic inside?

The answer lies in inflation, growth, and a bit of boldness.

RBI Surprises With a Rate Cut

Most economists expected the RBI to stay cautious. But the central bank leaned on one big factor - inflation has collapsed.

• October CPI inflation: 0.25%
• Average inflation (last 6 months): 2.0%
• Average inflation (last 3 months): 1.5%

This is the lowest inflation India has seen in the CPI era. With food inflation easing and the gold impact gradually tapering, the RBI believed this was the right moment to support growth.

And so, despite rupee volatility, the MPC chose to cut rates and push liquidity into the system.

Why the Move Was Brave

Cutting interest rates when the rupee is under pressure is not something a central bank typically does. It signals confidence - and perhaps courage - in the growth and inflation outlook.

The RBI didn’t stop at the rate cut. It doubled down with:

• a CRR cut (already implemented),
• fresh liquidity infusion, and
• ₹1 trillion worth of OMO purchases.

This is a full-scale liquidity expansion. And the RBI backed it with upgraded estimates:

• FY26 GDP growth revised up by 50 bps to 7.3%
• FY26 inflation forecast slashed by 60 bps to 2.0%

The message was clear: inflation is not a threat right now, and growth deserves more support.

Or Was It Bravura - a Calculated Risk?

There is another interpretation. This may not be simple bravery. It may be bravura - a bold move backed by deep internal confidence.

Why? Because the decision to cut rates was unanimous among all six MPC members. That means the RBI deliberated thoroughly and accepted calculated risks.

The core bet seems to be this:

• When the RBI turns dovish, FPIs often return to India.
• If FPI flows revive, the rupee could stabilise or even strengthen.
• If growth improves simultaneously, foreign inflows typically rise.

The RBI appears to be aiming for a virtuous cycle: growth → flows → stronger rupee → better sentiment → more flows.

This is bravura - bold but deliberate.

Why the RBI May Actually Be Right This Time

There is an important piece of the puzzle that the RBI did not explicitly mention: nominal GDP growth.

India’s nominal GDP grew just 8.7% in Q2 FY26 — far below the double-digit levels needed to attract global capital and sustain economic momentum. Without strong nominal growth, the India story does not look compelling to long-term investors.

Here is where ultra-low inflation becomes an opportunity:

• Real GDP will look strong for the next two quarters.
• The RBI has room to push nominal growth higher through easier policy.
• If nominal growth picks up, the rupee could strengthen instead of weakening.

In other words, the RBI is trying to “buy time” - using the low-inflation cushion to stimulate growth before global investors start reassessing India.

If this works, India could enter another sweet spot: low inflation, strong real growth, rising nominal growth, and stable currency.

Final Assessment: Bravery, Optimism, or Bravura?

The truth is - it’s a mix of all three.

• Bravery: Cutting rates with the rupee at ₹90/$ is gutsy.
• Optimism: The RBI expects inflation to stay low and growth to accelerate.
• Bravura: The move is calculated - betting on FPI flows, nominal growth revival, and a more supportive macro cycle.

The payoff will depend on two things:
(1) whether growth actually strengthens, and
(2) whether foreign investors return.
If both happen, the RBI’s bold call may look genius in hindsight.

Key Takeaways

• The rupee touched ₹90/$ just as the RBI cut rates by 25 bps.
• Inflation at 0.25% gave the RBI room to support growth.
• The move was unanimously backed by all MPC members.
• The RBI is betting on higher nominal GDP growth and renewed FPI flows.
• If the bet works, India could enter a favourable low-inflation, high-growth phase.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice.