RBI sold $8.94 billion in April as war pressures hit rupee

The Reserve Bank of India sold a net $8.94 billion in the foreign exchange market in April, deploying its second-largest monthly intervention of the fiscal year as the U.S.-Iran war drove the rupee to a record low of 96.96 per dollar, data released Monday showed.

"The scale of intervention reflects the RBI's determination to prevent disorderly depreciation during an external shock that India cannot control," said Elena Fischer, geopolitical risk analyst at Edgen. "The central bank is burning reserves to buy time, not to reverse the trend."

The central bank purchased $16.23 billion and sold $25.17 billion during the month, according to its monthly bulletin. That compares with a net sale of $9.76 billion in March. The rupee depreciated 0.11 percent in April, though the decline would likely have been steeper without RBI support — the currency touched 96.96 per dollar during the month as oil prices surged on disruptions in the Strait of Hormuz, which handles about 21 percent of global crude trade.

India's total net dollar sales for financial year 2025-26 reached $53.13 billion, the highest on record and exceeding the $34.51 billion sold in the prior year. The RBI's outstanding net short dollar forward position narrowed to $95.30 billion by end-April from $103.06 billion at end-March, the first decline in six months. Short positions under one year fell to $44.58 billion from $50.26 billion, while those exceeding one year dropped about $2 billion to $50.73 billion.

The cost of defending the rupee

The intervention carries a direct balance-sheet cost. The RBI's gold holdings remained unchanged at 880.52 metric tonnes in May, but their dollar value fell to $112.6 billion from $120.23 billion in late April, reflecting lower gold prices as the dollar strengthened during the conflict. The real effective exchange rate of the rupee stood at 86.20 in May, down from 87.76 in April, suggesting the currency remains overvalued relative to its trading partners despite the nominal depreciation.

The last time India faced a comparable external shock was during the 2022 Russia-Ukraine war, when the RBI sold a net $19.5 billion over three months and the rupee weakened from 76 to 83 per dollar. The current episode has already exceeded that pace: the RBI sold $18.7 billion in March and April alone, while the rupee has fallen from 87 to near 97.

What comes next

The sustainability of this intervention depends on the trajectory of oil prices and the duration of the U.S.-Iran conflict. Brent crude traded near $81 a barrel Monday after Iran again disrupted shipping through the Strait of Hormuz, keeping import costs elevated for the world's third-largest oil consumer. India imports about 85 percent of its crude requirements.

A sustained period of elevated oil prices would force the RBI to choose between further reserve depletion and allowing faster rupee depreciation, which would feed into domestic inflation. The central bank's next monetary policy decision is scheduled for August, and markets will watch for any shift in its inflation forecasts or rate stance as the geopolitical backdrop evolves.

This article is for informational purposes only and does not constitute investment advice.