India ramped up use of a key tool for defending the rupee to record levels as the currency weakened to an all-time low against the dollar, according to people familiar with the matter.
The Reserve Bank of India’s net-short dollar book, a measure of the degree it has sold forward its stockpile of US currency, is nearing $100 billion across offshore and onshore markets, said the people, who asked not to be identified as the information is private. The measure was $67.8 billion in January, according to the latest official data, and last hit a record $88.8 billion in February 2025.
The buildup comes as emerging markets face renewed pressure from a resurgent dollar. Even before the conflict broke out, the RBI was already heavily intervening to steady the rupee for months as high US tariffs spurred record equity outflows.
“Letting the rupee freely absorb shocks is not an option in times of stress, when speculative dominance in FX markets can quickly put the currency on a slippery slope, one that we can ill-afford,” said Madhavi Arora, chief economist at Emkay Global Financial Services Ltd.
The RBI focused much of its intervention in offshore markets, particularly through non-deliverable forwards, the people said. These dollar-settled contracts account for a significant share of its derivatives book, the people added.
The central bank has been selling dollars largely via short-dated contracts, typically maturing within weeks to a month, the people said. Onshore, it has supplemented this with buy-sell swaps — including longer-tenor trades exceeding a year, they added. The latter help offset the liquidity impact of RBI intervention.
India’s FX reserves stood at $717 billion in the week of March 6, near a record high.
Using NDFs allows the RBI to influence the exchange rate without immediately depleting foreign-exchange reserves, while also keeping intervention costs relatively lower. Such moves can signal policy intent and help steady the currency during periods of volatility.
A spokesperson for the RBI didn’t respond to an email seeking comment.
Still, the growing derivatives book may become a headwind. As contracts mature, they create recurring demand for dollars, which — alongside steady importer demand — could limit any sustained recovery in the rupee, Barclays Plc strategists including Mitul Kotecha wrote in a note Tuesday.
The rupee has marked successive record lows in March, breaching the closely watched 92-per-dollar level.
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