RBI creates intervention space as rupee faces renewed strain

The Reserve Bank of India has carved out more flexibility to defend the rupee, as rising geopolitical tensions and a spike in energy prices pushed the currency to a record low on Wednesday.

The central bank has changed the maturity profile of its short dollar forwards, reducing near-term delivery obligations and pushing them further out, the latest RBI data show. By reducing the amount of dollars it must deliver over the next year, the central bank has more room to take on fresh short dollar positions and intervene if pressure on the rupee persists.

RBI data released late Friday show net short dollar positions maturing within a year fell to $27.5 billion at the end of January, the lowest since September 2024. At the same time, the overall position climbed to a nine-month high of $67.8 billion, as the RBI opted for a three-year buy-sell swap — buying dollars now and committing to sell them back in three years.

“If the RBI is moving from short-term to longer-term maturity, it is obvious they have some room to intervene right now,” said Dilip Parmar, an analyst at HDFC Securities Ltd. “Looking at the geopolitical uncertainty, they require some of the cushion in the near term,” he said.

A spokesperson for the central bank didn’t immediately respond to an email seeking comment on the matter.

The rupee weakened to a record low on Wednesday as elevated energy prices stoked worries about inflation and the country’s widening trade deficit. The RBI intervened after the currency fell past the closely watched 92-per-dollar level, selling dollars to steady it, according to people familiar with the matter. 

Analysts’ views on the RBI changing the composition of its forward dollar book were shaped in part by the surge in oil prices as the war in Iran raised concerns about supplies moving through the Strait of Hormuz — the route for about half of India’s energy imports. The disruption has revived concerns about inflation in the country, which is heavily dependent on imported fuel.

Dollar deliverables

The RBI typically conducts swaps in the forward market to offset the liquidity drain caused by its dollar sales in the spot market. It sold a record $51.7 billion to support the rupee last year, keeping its forward positions elevated.

The move to push its short-term obligations further into the future may also reflect the central bank’s struggle to maintain comfortable banking liquidity, forcing it to defer those obligations instead of settling its dollar sales.

“A longer maturity profile definitely gives room to the RBI from a liquidity standpoint as it limits the near-term drain,” said Madhavi Arora, lead economist at Emkay Global Financial Services. But the shift to longer maturities also means that the RBI is paying higher premiums for a longer period.  

Even after extending maturities, analysts say the RBI’s dollar deliverables remain large enough to limit how aggressively it can step in. 

“There will still be restraint in the RBI’s utilisation of the forward book because though the maturity is elongated, the overall size of the forward book is very large,” said Gaura Sen Gupta, chief economist at IDFC First Bank. 

Still, regardless of whether the RBI opts for heavy intervention, analysts say the added flexibility in its forwards book could deter speculative bets against the rupee. With the currency among the most sensitive in emerging Asia to higher oil prices, the central bank may use its derivatives positioning to signal that it has the capacity to step in if needed.

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Published on March 4, 2026