The Reserve Bank of India’s (RBI) management of the rupee’s exchange rate has received a thumbs-up from the World Bank, with its officials noting that the economy’s strong buffers at the start of the war in West Asia explain why the Bank is “actually optimistic” about India’s ability to withstand the brunt of the ongoing crisis.
“I think that the position of the central bank been very consistent: manage short-term volatility in the exchange rate, which is exactly what you would want to do in in situations where shocks could be nonlinear and then the snowball effects kick in; but overall, not try to influence the course of the currency when there are these massive structural forces in the market,” Aurélien Kruse, World Bank’s Lead Country Economist for India, said on Thursday.
“So as far as I can tell, even though it’s not my role to comment on the RBI’s policy, it makes a lot of sense to me,” he added.
A delay in the conclusion of the India-US trade deal sparked foreign investment outflows in the second half of 2025 and pushed the rupee past 90- and 91-per-dollar in December. A second wave of risk-aversion caused by the US and Israel’s war against Iran led to the rupee tumbling past 92, 93, 94, and 95-per-dollar in quick succession in March. On Thursday, it closed at 92.66-per-dollar, with the rupee gaining significant ground against the American currency in recent days thanks to the RBI’s crackdown on speculative bets.
RBI Governor Sanjay Malhotra said on Wednesday the central bank’s exchange rate policy has not changed and that interventions in the foreign exchange market are aimed at smoothening excessive and disruptive volatility without targeting any specific level or band for the exchange rate.
The RBI has also conducted foreign currency sales in the spot and forwards market to defend the rupee, which has been under intense pressure from foreign investors exiting Indian financial markets in record numbers. In March, Foreign Portfolio Investors (FPIs) sold $12.7 billion worth of Indian shares, the highest monthly figure ever.
Kruse’s comments come a day after the World Bank raised its GDP growth forecast for India for the current fiscal by 30 basis points (bps) to 6.6% and estimated that retail inflation would more than double to 4.9%. While the inflation forecast is 30 bps higher than the RBI’s projection of 4.6%, the outlook for GDP growth is lower than the Indian central bank’s view of 6.9% by the same magnitude.
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A key difference between the RBI and the World Bank’s forecast is that while the former assumes a crude oil price of $85 per barrel for 2026-27, the World Bank has considered a higher price of $90-100/barrel, Franziska Ohnsorge, Chief Economist for the South Asia Region, said.
The growth forecast upgrade, despite the war in West Asia, was necessitated by multiple factors, including India signing a trade deal with the European Union in January and then with the US in February, and “incredibly strong” growth prints for July-September 2025 and October-December 2025.
“That made us revisit our priors. When we started our work on forecasting before the Middle East crisis happened, we were thinking about an upgrade,” Kruse said, although he warned that there were “massive” downside risks to the growth outlook.
Beyond 2026-27, the World Bank sees India’s GDP growth rising to 7.2% in 2027-28 and moderating slightly to 7% in 2028-29, as per the Bank’s India Development Update report, released on Thursday.
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Echoing the RBI’s comments from Wednesday, the World Bank also noted that India entered the crisis created by the conflict in West Asia on a strong footing thanks to low inflation, very low current account deficit, and strong growth. And while the government deficit and debt are high, it helps that it is mostly in rupees and not a foreign currency.
“The meaning of this is that India came into this new crisis from a position of very strong buffers and very strong ability to withstand the shock. And that explains why we’re actually optimistic about India’s ability, under a baseline scenario obviously, (to) withstand the brunt of the (current crisis),” Kruse said.
At the same time, he said Indian authorities had also struck a “right balance” between taking measures to manage supply without massive rationing and trying to smoothen the initial volatility through ways such as maintaining retail prices of oil to avoid a “very sharp nonlinear adjustment that would have been probably more detrimental than beneficial”.
On private investment, Kruse said that he was not surprised that it wasn’t buoyant “because if I were an investor I would wait and see to see how things unfold”.
