RBI ramps up defence of rupee near record lows, curbs excess volatility

Indian Rupee

The Reserve Bank of India (RBI) has been seen actively intervening in the foreign exchange market when the currency is near record lows or remained excess volatile in the last few months, with market participants noting increased activity both in the spot and offshore non-deliverable forward (NDF) markets.

“Yes, the RBI has intervened in the past whenever the USD/INR reaches a record high or there is sharp movement. This is just to smoothen the depreciation and not to control the currency,” said Anshul Chandak, Head of Treasury at RBL Bank.

The intervention is being done through large state-owned banks and on few instances via private banks.

Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, said the RBI’s actions have been particularly heavy around key levels. “For instance, at 87.95, the RBI took the rupee back to 83.75. Now near 88.80, it has been intervening heavily, once taking it to 87.62,” Bhansali said. “The intervention has been significant and seen in both the OTC and NDF markets,” he added, pointing out that around 95 percent of such operations are carried out through large state-run banks.

Market participants say such operations reflect the RBI’s intent to smooth volatility rather than defend any specific level of the currency, ensuring stability amid periods of excess speculative pressure.

The local currency has been under pressure since start of this calendar year due to various external and domestic factors. Uncertainty over US tariffs, prolonged Russia–Ukraine war and confrontation between Israel and Iran all contributed to the fall. Domestic factors such as foreign investor outflows were also a contributing factor.

US President Donald Trump’s 50 percent tariff, one of the highest in the world, on Indian goods, which kicked in on August 27, have dampened dollar inflows and hit market sentiment, reducing export competitiveness and revenue.

Indian rupee has depreciated around 3.65 percent so far this, and year-to-date, the currency has depreciated 3.32 percent against the dollar.

Usually, the central bank intervenes in the spot OTC market to curb the rupee's volatility but more recently, it has changed tactics and started being active in the NDF market.

Taking positions in the NDF market has a benefit of not spending foreign exchange from the reserves. On the contrary, in the spot market, the central bank has to spend dollars to reduce the volatility leading to reduction in forex reserves.

According to RBI bulletin data, outstanding net forward sales by the central bank stood at $53.355 billion in August, $57.850 billion in July, $60.390 billion in June, $62.215 billion in May, $72.575 billion in April, $84.345 billion in March and $88.753 billion in February.

According to RBI data, the central bank has spent net $43.466 billion between December 2024 and August, 2025 to defend rupee from falling sharply.