RBI Sold at Least $8 Billion to Support Rupee as Currency Faces Pressure

The Reserve Bank of India (RBI) sold at least $8 billion in the foreign exchange market last week to support the Indian rupee, according to estimates from six bankers cited by Reuters.

Bankers estimated the RBI's intervention could have been as high as $15 billion, highlighting the central bank's aggressive presence in the currency market as it seeks to prevent excessive volatility in the rupee.

Rupee Rises to Two-Month High

The intervention came as the rupee strengthened to ₹94.2850 per US dollar on September 3, its strongest level in more than two months.

The RBI's dollar sales helped anchor the currency while allowing the central bank to manage the large foreign-currency inflows that have entered India's financial system in recent months.

The rupee later closed around ₹94.49 per dollar on September 7, with traders reporting continued dollar sales by state-run banks, widely believed to have been acting on behalf of the RBI.

Why Is the RBI Selling Dollars?

The RBI intervenes in the foreign-exchange market when it wants to limit excessive movements in the rupee.

In this case, the central bank has an unusually large pool of foreign currency available after its recent measures attracted more than $136 billion in foreign-currency inflows.

Those measures included facilities linked to overseas borrowings and foreign-currency deposits by banks.

The additional dollar supply has given the RBI greater flexibility to sell dollars when necessary while also managing the rupee's liquidity conditions.

Forex Reserves Reach Record Levels

India's foreign-exchange reserves have also climbed sharply.

The country's reserves reached a record $740.8 billion, giving the RBI substantial firepower to intervene in the currency market. Reuters reported that reserves could subsequently have moved above $750 billion.

That reserve cushion is particularly important at a time when global oil prices, geopolitical tensions and capital flows are creating additional pressure on emerging-market currencies.

Dollar Sales Also Remove Rupees From the Banking System

The RBI's intervention has another important effect.

When the central bank sells dollars and receives rupees, it removes rupee liquidity from the banking system.

That has become increasingly relevant because India's banks are already dealing with an unusually large liquidity surplus created by foreign-currency inflows.

Banking-system surplus liquidity had reached roughly ₹10.3 lakh crore, according to the Indian Express, creating challenges for the RBI's monetary-policy transmission.

The RBI has therefore been using several tools simultaneously to manage both the currency and domestic liquidity.

RBI Faces a Two-Sided Challenge

The central bank now has to balance two potentially conflicting objectives.

On one side, the RBI wants to prevent excessive rupee volatility and avoid a disorderly fall in the currency.

On the other, the massive foreign-currency inflows have created surplus rupee liquidity, which can push short-term interest rates lower and complicate monetary policy.

The RBI has consequently used variable-rate reverse repo operations and is also reportedly using foreign-exchange swaps to absorb excess liquidity.

Oil Prices Add Fresh Pressure

The intervention comes as rising oil prices create another challenge for the rupee.

India imports most of its crude oil, meaning a sustained increase in global oil prices can increase demand for dollars from Indian importers.

Reuters reported that Brent crude was trading near $96.6 a barrel on September 7 amid tensions surrounding shipping through the Strait of Hormuz.

That combination of higher oil costs and global uncertainty could keep pressure on the rupee even as the RBI continues intervening.

What Happens Next?

The RBI's recent dollar sales demonstrate that the central bank has significant capacity to influence the currency market, particularly after the sharp increase in foreign-exchange reserves.

However, the intervention is unlikely to eliminate the underlying pressures on the rupee.

Global oil prices, foreign portfolio flows, US monetary policy and India's dollar demand will remain important factors for the currency.

For now, the RBI appears focused on preventing sharp moves rather than targeting a specific exchange rate.

The estimated $8–15 billion intervention last week shows just how actively the central bank is managing the rupee during an unusually complex period for India's foreign-exchange and banking markets.

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