MUMBAI: The rupee’s trajectory indicates a reversal amid a decline in crude oil prices with the United States (US) and Iran having reached an initial agreement to end the war, before finalising a peace deal in 60 days. The Reserve Bank of India (RBI) seems to be seizing this opportunity to bolster its forex reserves and manage its large short dollar forward position, dealers said.
Market participants estimated RBI’s dollar purchases at around $1 billion-2 billion on Thursday, after the central bank is believed to have absorbed $2 billion-3 billion from the market on Wednesday.
The rupee has gained for the last five straight sessions to strengthen 1.5 per cent against the dollar. However, gains were capped as RBI bought dollars to boost foreign exchange reserves which fell close to $50 billion since the West Asia conflict started in late February.
The rupee opened weak on Thursday after the US Federal Reserve maintained a cautious stance on rate cuts, supporting the dollar globally. However, the local currency recovered through the day as lower crude oil prices and sustained foreign inflows boosted sentiment.
The rupee settled at 94.34 per dollar, after touching the intra-day high of 94.17 per dollar, against the previous close of 94.53 per dollar.
The rupee has been among the best performing Asian currencies in recent weeks, supported by a recovery in portfolio inflows and easing concerns over India’s oil import bill following the decline in crude prices. It has appreciated 0.7 per cent this month. The recent gains helped the local currency to register an appreciation of 0.5 per cent so far in the April quarter.
“RBI could have bought around $1 billion-2 billion on Thursday,” said a dealer at a state-owned bank. “The rupee is not expected to appreciate sharply because of the forward maturities and RBI would use part of flows to replenish its reserves,” he added.
In the financial year 2025-26 (FY26), RBI net sold $53.13 billion in the spot market, the central bank’s largest annual net dollar sale as it moved to curb volatility in the foreign exchange market. The rupee fell close to 10 per cent in FY26.
RBI’s intervention was concentrated in periods of heightened currency weakness, with net dollar sales peaking at $11.88 billion in October and $10.02 billion in December.
After turning a net buyer in January and February, RBI reverted to net sales in March, offloading a net $9.76 billion through purchases of $19.89 billion and sales of $29.64 billion.
India’s foreign exchange reserves stood at $681.6 billion as of June 6, down by nearly $47 billion from the record high of around $728.5 billion touched in the last week of February, according to RBI data. This reflected RBI’s intervention to curb volatility in the currency market amid heightened global uncertainty and geopolitical tensions.
At the same time, the central bank has accumulated a sizeable short dollar forward (SDF) position. According to RBI data, its net short forward book stood at $95.3 billion at the end of April, after touching a record $103.1 billion in March. The position has since risen further as the RBI continued to intervene in the non-deliverable forwards (NDF) market, show dealers’ estimates.
Of the $95 billion net SDF at April-end, $13.52 billion was in one-month contracts, $10.90 billion in one- to three-month tenures, $20.15 billion in contracts with maturity of three months and a year, and the remaining $50 billion in a contract of over one year.
“RBI is taking the opportunity to buy dollars and add to reserves. At the same time, there is an incentive to reduce dependence on the forward book as contracts come up for maturity,” said a dealer at a state-owned bank.
A sizeable portion of outstanding forward contracts is due for maturity over the coming months.
Market participants expect RBI to remain an active dollar buyer when the rupee is strong. “RBI is not resisting appreciation, but it is preventing a sharp move. The objective appears to be to reserve accretion while managing the forward book,” said a market participant.
Source: Business Standard
