SRMED
Englishعربي
Englishعربي
India's Reserve Bank (RBI) has intensified its interventions in the foreign exchange market to defend the rupee, which recently hit a 3-week low amid escalating pressures from global tensions, including the war involving Iran. Financial market traders reported on Thursday that the RBI likely sold dollars to curb the currency's sharp decline, as confirmed by Asharq Al-Awsat. This action comes as the rupee weakens past critical levels like 93 per US dollar for the first time on March 20, 2026, despite over $15 billion in estimated dollar sales by the central bank that month.
The rupee's depreciation, down 2.63% so far in 2026 and about 1.8% since West Asia tensions intensified, stems from a mix of factors: surging crude oil prices, a stronger US dollar, foreign investor outflows, and India's structural challenges like heavy import dependence and trade deficits. Angel One reports highlight how these global and domestic pressures have pushed the currency to intra-day lows of 93.49, even as RBI efforts provide temporary support. In parallel, Indonesia's central bank opted to keep interest rates steady on Wednesday to bolster its own rupee against war repercussions, showing a regional pattern of currency defenses, according to Asharq Al-Awsat.
RBI has ramped up sophisticated tools beyond spot market sales, including a record net-short US dollar book nearing $100 billion in offshore and onshore markets—up from $67.8 billion in January. The Business Times notes this use of non-deliverable forwards (NDFs) and buy-sell swaps allows influence on exchange rates without rapidly depleting forex reserves, supplemented by longer-tenor trades over a year. Additional measures include capping banks' open forex positions at $100 million, banning rupee NDFs, halting forward contract re-booking, and restricting deals with related parties to curb speculation, as detailed by NDTV.
These interventions have yielded mixed short-term results. The rupee jumped 1.3% to 93.53 on Thursday—its biggest gain in over 12 years—following RBI's targeted curbs, per NDTV. However, Republic World reports that despite initial strengthening to 93.5 after banks dumped dollars due to position limits, the currency slipped back to 94.7 as markets adjusted to cheaper USD availability. Brokerage Motilal Oswal noted this reversal coincided with a 4% Bank Nifty crash, erasing around Rs 4,000 crore in banking sector value, underscoring the costs of such defenses.
Banks face potential losses up to Rs 4,000 crore from these RBI-mandated adjustments, as explained by The Economic Times, while the central bank's aggressive stance persists even before the Iran conflict, driven earlier by high US tariffs and equity outflows. Experts warn that if the war prolongs, the rupee could weaken further, given India's vulnerability to oil shocks as a major importer.
Looking ahead, RBI's multi-pronged approach—combining liquidity-neutral swaps, position caps, and forward market interventions—aims to stabilize volatility near financial year-ends. Affected parties include exporters gaining from a weaker rupee, importers facing higher costs, banks under position squeezes, and households hit by imported inflation. Regional peers like Indonesia signal broader Asian central bank vigilance, but sustained global pressures could test India's reserves and policy limits in the coming months.