Rupee Defence 2026: RBI Spends $1bn Daily to Stabilise

Why the RBI’s rupee defence has intensified

India’s currency market has entered a phase where the Reserve Bank of India (RBI) is spending heavily to reduce volatility rather than target a specific exchange rate. After the West Asian crisis intensified and crude oil prices surged, pressure on the rupee increased sharply. Market participants say the RBI has responded with one of its most aggressive currency-defence operations in recent years.

The move matters because the risk for policymakers is not a measured depreciation, but a fast and disorderly fall that can quickly feed imported inflation. Fuel, fertilisers, freight and industrial inputs tend to transmit currency weakness into broader prices. In that environment, the RBI’s role becomes less about defending a symbolic level and more about slowing the pace of adjustment.

How far the rupee has moved, and when it broke records

The rupee was trading around 93.98 per US dollar in March. It then weakened to an all-time low of 96.96 on May 20, before intervention pulled it back toward the 96 range. A separate Reuters report dated May 22 said the RBI sold dollars aggressively on Thursday and stepped in again on Friday, helping the rupee strengthen past 96 per dollar.

Bankers told Reuters the rupee rose 0.64% to close at 96.20 after the Thursday intervention, and later extended past 96 on Friday when the RBI resumed dollar sales. They also said about $100 million was sold pre-market on Thursday, when liquidity was limited and the impact of intervention was amplified.

The scale of dollar selling: $100 million to $1 billion a day

Market estimates in the reports suggest the RBI has been intermittently selling between $100 million and $1 billion daily through spot and forward market operations to curb volatility. Reuters cited bankers estimating daily spot-market sales in that same $100 million to $1 billion range over recent days, based on USD/INR volumes, state-run bank activity and order flow patterns.

Another Reuters dispatch said the intervention on Thursday was a step up, with the RBI selling $1 billion to $1 billion that day to defend the rupee against relentless pressure. Bankers also described this as more forceful than earlier days when dollar sales averaged about $1 billion.

Reserves have fallen from record highs as intervention rose

The RBI’s intervention has coincided with a drop in headline foreign exchange reserves from a record. Reserves touched $128.49 billion in late February, then fell to $198.49 billion by April 24 and further to $190.69 billion by early May. They recovered modestly to $196.99 billion in the week ended May 8, after a rise in gold reserves.

In another section of the provided material, reserves were cited at about $188 billion, and usable reserves were estimated at about $123 billion after excluding $15 billion of net short forward positions. Separately, a note referenced reserves near $191 billion, including an explicit figure of $190.7 billion as of May 1.

The RBI’s toolkit: spot sales, forwards, pre-market action

Reports describe the RBI using a mix of tools rather than defending a fixed exchange rate. These include aggressive dollar sales, tactical intervention across spot and forward markets, and surprise pre-market operations meant to deter speculative positioning.

Traders also pointed to a change in the style of intervention. Until the large Thursday move described by Reuters, the central bank had been supplying dollars at market levels without pushing the rupee higher. On that day, the dollar sales appeared “level-agnostic” and aimed at sparking a rally to discourage speculative positions, according to a trader quoted by Reuters.

A $1 billion USD/INR buy-sell swap to manage liquidity

The RBI also announced a $1 billion dollar-rupee buy-and-sell swap auction scheduled for May 26 to manage liquidity pressures arising from sustained intervention. In another section, the swap was described as having a three-year tenor.

The swap is expected to inject around Rs 42,000-43,000 crore of liquidity into the banking system and boost dollar reserves. But the material also notes that such swaps can carry an additional cost because banks sell dollars to the RBI for rupee liquidity and later buy back the same dollars at maturity at spot price plus a premium.

Forward positions and offshore markets: NDF intervention in focus

Apart from spot-market action, sources cited in the material said the RBI has ramped up offshore market intervention. The net-short US dollar book of the RBI was said to be nearing $100 billion across offshore and onshore markets, compared with $17.8 billion in January. The same measure last hit a record $18.8 billion in February 2025.

Another report said the RBI built short US dollar positions of at least $15 billion in the non-deliverable forwards (NDF) market over the past two to three weeks. Sources said the RBI’s activity often increased before the local market opened at 9 am in Mumbai, and picked up when the rupee breached the 89 per US dollar mark in the offshore market.

What is driving the pressure: oil prices and US yields

The reports repeatedly point to external shocks. The RBI is described as resisting rate hikes purely to defend the rupee, arguing that the pressure stems from geopolitical risk and crude oil shocks rather than domestic macroeconomic weakness.

One section cited Brent crude rising about 16% in a week and nearing $13.78 per barrel. Alongside oil, surging US Treasury yields were cited by bankers as a key reason the rupee kept making record lows even as intervention slowed the pace of losses.

Government signals: trade ministry and possible emergency steps

The trade minister, Piyush Goyal, said India was considering several steps to counter rupee depreciation after the currency hit a string of record lows. A separate note attributed to BNY’s Bob Savage said India was considering emergency measures to protect foreign exchange reserves as higher oil prices widen the current account deficit.

Measures under discussion were described as fuel price hikes, import restrictions on gold and electronics, and tighter hedging rules. The same note also said Prime Minister Narendra Modi urged citizens to avoid gold purchases for a year and limit overseas travel, while the RBI may tighten currency hedging rules for importers.

Key numbers to track

Market impact: what the RBI is trying to prevent

The reported strategy is centred on avoiding a steep, disorderly depreciation that can become self-fulfilling. Officials and market participants described a scenario where a rapid slide could trigger capital flight, spike import costs, and unanchor inflation expectations. That is why the RBI has been willing to sell dollars daily and, at times, deploy larger one-off interventions.

Gaura Sen Gupta, chief economist at IDFC FIRST Bank, was quoted saying the aim is to manage the pace of decline and prevent a self-fulfilling spiral. Based on her reserve money calculations, she estimated the RBI sold about $1 billion in the first week of May.

Analysis: defending “a level” vs defending “orderly markets”

Across the reports, the RBI’s message is consistent: gradual depreciation may be tolerated, but a sharp, panic-driven fall will not be allowed. That distinction matters for investors because it frames intervention as volatility management, not a peg.

The cost is visible in falling reserves and a growing use of forwards and NDFs, including net-short dollar positions. At the same time, the RBI appears to be balancing two constraints highlighted in the material: limiting imported inflation risks while avoiding rate hikes that could tighten domestic financial conditions when the shock is mainly external.

Conclusion

The rupee’s fall toward record lows has prompted the RBI to step up dollar sales, adjust intervention tactics, and add a $1 billion USD/INR buy-sell swap to manage liquidity. With oil prices and US yields cited as key drivers, the focus remains on preventing disorderly moves rather than fixing an exchange rate. The next near-term milestone flagged in the reports is the May 26 swap auction, alongside any additional government measures under consideration to reduce pressure on the external balance.