RBI ramps up key tool to defend falling rupee

Core Viewpoint - India has significantly increased its intervention in foreign exchange markets to defend the rupee, which has weakened to an all-time low against the dollar, with the Reserve Bank of India's (RBI) net-short dollar book nearing $100 billion [1][2]. Group 1: RBI's Intervention Strategy - The RBI's net-short dollar book was reported at $67.8 billion in January and reached a record of $88.8 billion in February 2025, indicating a substantial increase in its dollar sales [2]. - The RBI has focused its interventions primarily in offshore markets, utilizing non-deliverable forwards (NDFs) to manage the exchange rate without depleting foreign-exchange reserves immediately [4][6]. - The central bank has been selling dollars mainly through short-dated contracts, maturing within weeks to a month, and has also engaged in buy-sell swaps to mitigate liquidity impacts [5]. Group 2: Market Conditions and Challenges - Emerging markets, including India, are facing renewed pressure from a strengthening dollar, which has led to significant equity outflows due to high US tariffs [3]. - The rupee has experienced successive record lows in March, surpassing the critical 92-per-dollar level, indicating ongoing volatility in the currency market [7]. - Analysts from Barclays Plc have noted that the growing derivatives book may pose challenges, as maturing contracts create recurring demand for dollars, potentially hindering any sustained recovery of the rupee [7].