RBI avoids dollar purchases for first time in 11 years
What's the story
The Reserve Bank of India (RBI) did not buy any US dollars from the forex spot market in July, a first in over 11 years. The move comes as the Indian rupee faced heavy pressure during the month, as reported by Moneycontrol. To stabilize the currency, the RBI sold $2.54 billion during this period, according to data from the central bank.
Reserve decline
Foreign exchange reserves fall
As the RBI refrained from dollar purchases, India's foreign exchange reserves fell to $688.871 billion on August 1, down from $699.736 billion on July 4. The reserves include foreign currency assets, gold reserves, special drawing rights (SDRs), and the reserve position in the International Monetary Fund (IMF). In July alone, the rupee depreciated by 2.23%, its biggest monthly fall this year.
Stability measures
Shift from traditional reserve accumulation to defensive operations
Experts say the RBI's decision to sell dollars instead of buying them marks a shift from traditional reserve accumulation to defensive operations. This is aimed at ensuring currency stability and managing exchange rate volatility through both spot and forward markets. Despite the rupee hitting record lows multiple times in the last few weeks, the central bank has been cautious and selective in its interventions in the spot currency market.
External impact
Rupee under pressure due to external shocks
The rupee has been under pressure due to external shocks since the start of this fiscal year. It has depreciated by some 3.65% in FY26 so far. Year-to-date, the currency has depreciated by 3.48% against the dollar, its steepest fall in two financial years. Uncertainty over US tariffs, a prolonged Russia-Ukraine war, and tensions between Israel and Iran have all contributed to this decline.