Business · India Bureau
RBI deploys bulk of forex reserves defending rupee amid headwinds
The Reserve Bank of India has expended an estimated $75-80 billion from its foreign exchange reserves since June to shore up the rupee, bankers said, as the currency faces persistent depreciation pressure from multiple external factors.
LSN India ·
The RBI has deployed roughly half of its $140 billion foreign exchange capital buffer in recent months to defend the rupee against sustained weakness, according to estimates from banking sector participants. The central bank has executed the intervention through spot dollar sales and currency swap operations since mid-year, marking a significant drawdown of reserves to stabilize the domestic currency.
Multiple headwinds have pressured the rupee in recent months, including elevated crude oil prices that strain India's import bill, rising US Treasury yields that make dollar-denominated assets more attractive to foreign investors, and substantial capital outflows from Indian equities. These factors have combined to create sustained depreciation pressure on the currency.
The scale of intervention reflects the RBI's commitment to maintaining orderly currency markets and supporting macroeconomic stability. Central banks typically use foreign exchange reserves for such operations when currencies face sharp movements driven by external shocks or shifts in capital flows.
Bankers noted that while the $75-80 billion deployment represents a substantial portion of the RBI's $140 billion capital base earmarked for such operations, the central bank maintains adequate reserves to continue supporting the rupee if market conditions warrant further intervention. The rupee's performance remains crucial for managing imported inflation and maintaining investor confidence in the Indian economy.