RBI steps up defence as rupee battles geopolitical headwinds

The central bank offloaded a net $8.94 billion in the spot market during April to temper volatility as global tensions and foreign outflows weighed on the local currency.

The Reserve Bank of India’s (RBI) monthly bulletin for June reveals a central bank in active defence mode. During the month of April, the regulator sold a net $8.94 billion in the spot foreign exchange market to steady a rupee that was reeling from the impact of the U.S.-Iran crisis and surging global oil prices. This marks the second consecutive month of significant intervention, following a net sale of $9.76 billion in March, as the bank sought to contain the fallout from persistent foreign portfolio outflows.

Market data shows that the RBI’s intervention involved gross purchases of $16.23 billion against gross sales of $25.17 billion throughout April. The sustained pressure pushed the local currency to a record low of 96.96 against the dollar during the period. While the sheer volume of intervention highlights the intensity of the struggle, it also underscores the central bank's commitment to curbing excessive volatility rather than targeting a specific exchange rate.

A heavy fiscal year

The scale of the RBI’s recent activity is historic. In the financial year 2025-26, the central bank net sold a staggering $53.13 billion in the spot market—the highest level recorded in a single fiscal year. This sharp escalation from the $34.51 billion sold during 2024-25 points to the mounting challenges posed by global bond yields and the shifting appetites of foreign investors.

Beyond the spot market, the RBI has been managing its forward book as well. Outstanding net short dollar positions in the forward market eased to $95.30 billion by the end of April, down from $103.06 billion in March. This reduction reflects a strategic recalibration, with short positions across various tenures seeing a dip as the central bank balances its liquidity management with broader monetary objectives.

Why it matters: The bigger picture

The aggressive use of forex reserves is a calculated trade-off. By drawing down reserves—which recently dipped to a more than one-year low of $671.6 billion—the RBI is essentially buying time for the economy to absorb external shocks. While high oil prices and geopolitical friction act as immediate headwinds, the recent retreat in crude costs and a series of policy measures aimed at shoring up dollar inflows suggest the worst of the currency's slide may be behind us.

Looking ahead, the stability of the rupee will likely hinge on the resilience of these inflows and a cooling of the regional tensions that defined the spring. The central bank remains the ultimate backstop, but its ability to sustain such heavy intervention is naturally balanced against the necessity of maintaining a healthy buffer of reserves. For now, the focus shifts to whether the recent recovery in June, which saw the rupee gain 0.2% over its March-end levels, signals a more durable trend.