RBI Builds $100 Billion Forward Dollar Position To Support Falling Rupee

The Reserve Bank of India (RBI) has sharply increased its use of forward dollar sales to defend the rupee, with its net-short dollar position nearing $100 billion. India’s apex bank’s net-short dollar book has risen significantly from $67.8 billion in January, based on the latest official data. It had previously touched a record $88.8 billion in February 2025.

The ramp-up comes as the rupee has weakened to fresh record lows against the dollar. The currency breached the 92-per-dollar mark in March. It came under pressure from a stronger US dollar and persistent foreign outflows.

Intervention Strategy Shifts Offshore

A large part of the RBI’s recent activity has moved to offshore markets, with a focus on non-deliverable forwards (NDFs). These are dollar-settled contracts, unlike onshore trades that involve the local currency. They now account for a sizable share of the central bank’s derivatives positions.

This approach gives the RBI room to manage the rupee’s movement without immediately using up its foreign exchange reserves. The central bank has largely been selling dollars via short-term forward contracts. Most of these mature within weeks to a month.

On the domestic front, the RBI has also used buy-sell swaps alongside its forward market operations. A part of these deals runs for more than a year. Such longer-duration trades help keep liquidity conditions stable, even as the central bank continues to sell dollars in both spot and forward segments.

Pressure From Global And Domestic Flows

The latest build-up in the RBI’s derivatives position comes against a backdrop of renewed stress across emerging markets. A resurgent dollar has weighed on currencies globally. In India’s case, the pressure has been amplified by sustained equity outflows triggered by higher US tariffs and global risk aversion.

Even before recent geopolitical tensions escalated, the RBI had been actively intervening to stabilise the rupee. Market participants feel that the central bank’s stepped-up activity reflects an effort to smooth volatility rather than defend a specific level.

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Forex Reserves Remain Near Record High

Notably, India’s foreign exchange reserves stood at $717 billion for the week ended 6 March. The use of derivatives such as NDFs allows the RBI to manage the exchange rate without an immediate hit to reserves. It also keeps intervention costs relatively contained compared with outright spot market operations.

Industry watchers feel that RBI’s actions also send a message to the market. They show the central bank is stepping in to prevent sharp swings in the currency, particularly when volatility rises.

That said, the expanding forward book may bring its own set of issues. When these contracts start maturing, the demand for dollars tends to come back into the system. This could add to the usual demand from importers and others, keeping pressure on the currency.

Sources

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Bloomberg