India’s central bank ramps up key tool to defend falling rupee
The build-up comes as emerging markets face renewed pressure from a resurgent US dollar
Add BT as a preferred source
[MUMBAI] India ramped up its use of a key tool for defending the rupee to record levels – as the currency weakened to an all-time low against the US dollar, sources said.
The net-short US dollar book of the Reserve Bank of India (RBI), a measure of the degree it has sold forward its stockpile of US currency, is nearing US$100 billion in offshore and onshore markets, said the sources, who asked not to be identified as the information is private.
The measure was US$67.8 billion in January, the latest official data showed, and last hit a record US$88.8 billion in February 2025.
The build-up comes as emerging markets face renewed pressure from a resurgent US dollar.
Even before the conflict broke out, the RBI was already heavily intervening to steady the rupee for months, as high US tariffs spurred record equity outflows.
Madhavi Arora, chief economist at Emkay Global Financial Services, said: “Letting the rupee freely absorb shocks is not an option in times of stress, when speculative dominance in FX markets can quickly put the currency on a slippery slope, one that we can ill-afford.”
Navigate Asia in
a new global order
Get the insights delivered to your inbox.
The RBI focused much of its intervention in offshore markets, particularly through non-deliverable forwards (NDFs), the sources said.
These US dollar-settled contracts account for a significant share of its derivatives book, they added.
The central bank has been selling US dollars largely via short-dated contracts, typically maturing within weeks to a month, they also noted.
Onshore, it has supplemented this with buy-sell swaps – including longer-tenor trades exceeding a year, they said. The latter help offset the liquidity impact of RBI intervention.
India’s FX reserves stood at US$717 billion in the week of Mar 6, near a record high.
Using NDFs allows the RBI to influence the exchange rate without immediately depleting FX reserves, while also keeping intervention costs relatively lower.
Such moves can signal policy intent and help steady the currency during periods of volatility.
A spokesperson for the RBI did not respond to an e-mail seeking comments.
Still, the growing derivatives book may become a headwind.
As contracts mature, they create a recurring demand for US dollars, which – alongside steady importer demand – could limit any sustained recovery in the rupee, Barclays strategists wrote in a note on Tuesday (Mar 17).
The rupee has marked successive record lows in March, breaching the closely watched level of 92 rupees for each US dollar. BLOOMBERG
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Sign up here to get Decoding Asia newsletter. Delivered to your inbox. Free.
Share with us your feedback on BT's products and services
