Insider: India's central bank is changing its strategy to tolerate a weaker rupee to deal with external headwinds.

According to reports, sources said that due to multiple obstacles faced by India's external sector, including the widening trade deficit and a stagnation of US dollar inflows into the world's fifth largest economy, the Reserve Bank of India will tolerate a weaker rupee. The central bank had been actively selling dollars to support the rupee until last month, but in the past seven trading days, it has allowed the rupee to fall by 1.3% to a record low of 90.42. The rupee has already declined by 5.5% this year, making it the worst performing currency in Asia. Sources said that by indicating tolerance for a weaker rupee, the central bank is showing that its intervention will primarily be used to prevent sharp fluctuations or any signs of speculative accumulation, rather than defend any specific level of the rupee. One source commented, "When everything is unfavorable for the currency in terms of fundamentals, depleting forex reserves makes no sense." India is one of the markets facing the most severe capital outflows, with foreign investors having already sold $17 billion worth of stocks so far this year. Meanwhile, foreign direct investment, trade, and offshore financing flows have also slowed down.