The Indian rupee recorded its largest single-day rise in six months after the Reserve Bank of India introduced its most forceful measures since the 2013 "taper tantrum" to support the local currency.

The rupee climbed 1% against the US dollar on October 12 to 95.7575, marking its biggest advance since April. Bonds fell, with the benchmark 10-year Indian government bond yield rising as much as 7 basis points to 7.37%, the highest level since October 2023.

The rupee has depreciated more than 6% this year, and the central bank is making it increasingly difficult to bet against the currency. On Saturday, after the rupee approached a record low of 97 against the dollar, the RBI announced a series of measures to stabilize the exchange rate, including setting up a dedicated window to meet the dollar demand of state-owned oil companies and imposing reserve requirements on certain foreign exchange derivative transactions.

Although these steps have given the rupee some breathing room, sustaining the rebound will not be easy, as elevated oil prices, persistent foreign capital outflows, and a widening current account deficit continue to weigh on the currency.

The central bank raised interest rates last week and signaled that further monetary tightening cannot be ruled out. According to traders familiar with the matter, the RBI intervened in the onshore market again on October 12 to support the rupee.

"These are just temporary fixes, not structural solutions," said Madhavi Arora, chief economist at Emkay Global Financial Services Ltd. "On the surface, these measures should curb speculative positions, raise the cost of carry trades, tighten bank liquidity, and provide some short-term support for the rupee."

The RBI has taken multiple steps to boost its foreign exchange reserves. Its overseas diaspora deposit program raised a record $133 billion, bringing the central bank's foreign exchange reserves to nearly $800 billion in early September. But since then, reserves have fallen by $51 billion over the past four weeks as the central bank defended the currency.

The rupee is one of Asia's worst-performing currencies this year. RBI Governor Sanjay Malhotra has said that by some measures the rupee is undervalued and that short-term market fluctuations may be irrational.