RBI Using Rupee Strength To Rebuild Forex Reserves, Say Dealers

New Delhi, Jun 19 (KNN) The Reserve Bank of India (RBI) is believed to be utilising the recent strengthening of the rupee to rebuild foreign exchange reserves and gradually manage its sizable short dollar forward position, according to market participants.

RBI Uses Rupee Strength To Rebuild Forex Buffers

The rupee has strengthened for five straight sessions, gaining around 1.5 percent against the US dollar amid easing crude oil prices and sustained foreign inflows following reports of a US-Iran agreement to end hostilities and pursue a peace deal. 

Dealers estimated that the RBI purchased USD 1-2 billion on Thursday after absorbing USD 2-3 billion the previous day, reported Business Standard. 

Rupee Recovers Despite Fed's Cautious Stance

The rupee settled at 94.34 against the dollar after touching an intra-day high of 94.17, compared with its previous close of 94.53. 

Although it opened weaker after the US Federal Reserve's cautious stance on rate cuts supported the dollar, lower crude oil prices and sustained foreign portfolio inflows helped the domestic currency recover during the session. 

RBI Intervention Moderates Currency Gains

Market participants said the rupee has been among Asia's better-performing currencies in recent weeks, though RBI intervention to rebuild foreign exchange reserves has tempered its gains. 

India's forex reserves stood at USD 681.6 billion as of June 6, down nearly USD 47 billion from the record USD 728.5 billion in late February, reflecting the central bank's efforts to curb volatility amid geopolitical and global uncertainties. 

Record Dollar Sales Mark FY2025-26

In FY2025-26, the RBI recorded net spot dollar sales of USD 53.13 billion, its highest annual intervention, as the rupee depreciated nearly 10 percent. 

Net sales peaked at USD 11.88 billion in October and USD 10.02 billion in December during periods of heightened weakness. 

Although the central bank turned a net buyer in January and February, it reverted to net sales in March, posting net sales of USD 9.76 billion. 

RBI Gradually Reduces Forward Exposure

RBI data showed that the central bank's net short dollar forward position eased to USD 95.3 billion at the end of April from a record USD 103.1 billion in March. 

The outstanding position included USD 13.52 billion in one-month contracts, USD 10.90 billion in contracts maturing within one to three months, USD 20.15 billion in maturities of three months to one year, and the remaining USD 50 billion in contracts extending beyond one year. 

Balanced Strategy Focuses On Stability

Dealers said the RBI is likely to continue buying dollars during periods of rupee strength to rebuild reserves and gradually pare its forward liabilities as contracts mature. 

The strategy suggests the central bank is not seeking to curb rupee appreciation but is focused on preventing sharp currency swings while balancing reserve accumulation and its forward position. 

(KNN Bureau)