In a strategic move to stabilize the Indian rupee, the Reserve Bank of India (RBI) is reported to have sold at least $5 billion in the foreign exchange market, according to Bloomberg News and corroborated by multiple financial sources. The intervention comes amid mounting pressure on the rupee, driven by global trade tensions, equity outflows, and a strengthening U.S. dollar.
This action marks one of the central bank’s most significant forex interventions in 2025 and reflects its commitment to maintaining orderly market conditions.
Rupee Under Pressure
The rupee has faced considerable headwinds in recent weeks, closing at a record low against the dollar following the U.S. administration’s announcement of additional tariffs on Indian exports. The move, part of escalating trade tensions between Washington and New Delhi, triggered capital outflows and heightened currency volatility.
In response, the RBI stepped in to curb the slide, executing the second leg of a $5 billion USD/INR buy-sell swap that matured in early August. By selling dollars and absorbing rupees from the banking system, the central bank aimed to strengthen the domestic currency and drain excess liquidity.
Liquidity Management and Swap Strategy
The $5 billion swap was originally initiated in January 2025 as part of RBI’s liquidity injection strategy. At the time, the central bank bought dollars to release rupees into the system. Now, with liquidity running in surplus—estimated at over ₹3.60 lakh crore (approximately $41.2 billion)—the RBI has opted to settle the swap without a rollover.
According to banking experts, this move is unlikely to disrupt money markets due to the comfortable liquidity position. “At this juncture, rupee liquidity is very comfortable, and it makes sense for the central bank to deliver the dollars,” said VRC Reddy, treasury head at Karur Vysya Bank.
Impact on Forex Reserves
India’s foreign exchange reserves fell sharply by $9.3 billion in the week ending August 1, marking the steepest weekly decline of the year. Analysts estimate that $6.9 billion of this drop was due to RBI’s direct intervention, while the remaining $2.4 billion was attributed to revaluation losses from a stronger dollar.
Despite the decline, India’s reserves remain robust at $688.9 billion, sufficient to cover more than 11 months of merchandise imports. The RBI maintains that its interventions are aimed at curbing excessive volatility rather than defending any specific exchange rate level.
Market Reaction and Forward Outlook
The forex market responded calmly to the intervention. Near-term dollar-rupee swaps showed no signs of disruption, with the cash-tomorrow swap quoted at 0.34/0.35 paisa, implying an annualized yield of around 5.8%—only marginally above the interbank call rate.
Experts believe the RBI’s calibrated approach to liquidity and forex management will continue, especially as global uncertainties persist. “Even after the outflow, the liquidity will be in a sizable surplus. Tomorrow’s surplus numbers will give a better picture of the amount devolved,” said Alok Singh, treasury head at CSB Bank.
Strategic Implications
This intervention underscores the RBI’s dual mandate: maintaining currency stability while ensuring adequate liquidity in the banking system. The move also signals the central bank’s readiness to act decisively in the face of external shocks, including geopolitical tensions and trade disruptions.
With the rupee still vulnerable to global developments, further interventions may be on the horizon. However, the RBI’s current stance suggests a preference for targeted, non-disruptive actions that preserve market confidence and macroeconomic stability.
Sources: The Hindu BusinessLine, Economic Times, Financial Express
