RBI firefights to keep rupee afloat amid outflows, external pressures
March 22, 2026
RBI steps up intervention to support the rupee amid FPI outflows, rising oil prices, and widening BoP deficit, with mounting pressure from a ballooning forward book deficit
The rupee, which depreciated 2.9 per cent in March alone, hit a new all-time low of 93.72 on Friday. This is despite the central bank intervening in the foreign exchange market by selling dollars.
Without those interventions — estimated at $4 billion — the Indian unit may have hit 95/$, dealers said.
Market participants estimate that the RBI may have sold $26-27 billion in March to slow the currency’s fall.
The RBI always maintains that it does not target any particular level and intervention is only to curb volatility.
The rupee has depreciated 8.8 per cent against the dollar in the current financial year so far, worst since FY14, when it fell 9.37 per cent.
Currency experts said there would be multiple headwinds in the coming days and months and the RBI would face an uphill task to protect the rupee.
Foreign portfolio investors (FPIs) are fleeing towards safe-haven assets due to the ongoing geopolitical tensions.
Equity outflows in March are estimated at $8.4 billion. And, flows into bonds under the fully-accessible route (FAR) have turned negative. It is unlikely that the flows would be reversed anytime soon, if geopolitical tensions persist.
The ballooning short position of the RBI’s forward book is yet another factor which is exerting pressure on the rupee.
By the end of January, the dollar deficit in the RBI’s forward book swelled to $68.4 billion. The deficit hit a high of $88.7 billion in February 2025 after which it fell to $53.3 billion in August. Latest reports suggest the deficit has surged past $100 billion in March.
“Another key factor that continues to act as a drag on the rupee is the RBI's outstanding forward-book exposure,” Barclays said in a note on Friday.
“In order to prevent a more rapid slide in the rupee, the RBI continues to intervene in the forex market through both spot and forwards. Estimates now point to the RBI's overall forward book deficit exposure reaching around $100 billion,” the note added.
Apart from FPI and foreign direct investor (FDI) outflows, which are exerting pressure on the rupee, Barclays pointed to the worsening balance of payments (BoP) situation as the rupee is vulnerable to oil price shocks.
BoP deficit widened to $24.4 billion in October-December quarter of the current financial year compared to $10.9 billion in the previous quarter.
The rise in BoP deficit was led by capital account turning negative of $10 billion in Q3 of FY26 from a net surplus of $2.1 billion in Q2.
“The West Asia shock comes at a time when India was already seeing capital outflows… the extent of intervention required to keep the rupee steady will be large,” said Gaura Sen Gupta, chief economist, IDFC First Bank.
Sen Gupta added, “The duration of the crisis is unknown. If it’s a long drawn out crisis, then preserving foreign exchange reserves is critical.”
Forex reserves, which hit an all-time high of $728.5 billion in the week ended February 27, 2026, fell to $709.8 billion in the week ended March 13, latest data showed.
Since the end of March last year, reserves increased by $44.4 billion, mainly due to rise in gold reserves.
Foreign currency assets (FCA) — the major component of foreign exchange reserves — has actually fallen in the current financial year by $9.4 billion.
FCA fell $5.6 billion in FY25 also, after increasing by $60 billion in the previous financial year.
“Moreover, the forex reserves will decline due to revaluation loss, owing to dollar strength, a rise in US treasury yield, and a drop in gold prices,” Sen Gupta said.
Without those interventions — estimated at $4 billion — the Indian unit may have hit 95/$, dealers said.
Market participants estimate that the RBI may have sold $26-27 billion in March to slow the currency’s fall.
The RBI always maintains that it does not target any particular level and intervention is only to curb volatility.
The rupee has depreciated 8.8 per cent against the dollar in the current financial year so far, worst since FY14, when it fell 9.37 per cent.
Currency experts said there would be multiple headwinds in the coming days and months and the RBI would face an uphill task to protect the rupee.
Foreign portfolio investors (FPIs) are fleeing towards safe-haven assets due to the ongoing geopolitical tensions.
Equity outflows in March are estimated at $8.4 billion. And, flows into bonds under the fully-accessible route (FAR) have turned negative. It is unlikely that the flows would be reversed anytime soon, if geopolitical tensions persist.
The ballooning short position of the RBI’s forward book is yet another factor which is exerting pressure on the rupee.
By the end of January, the dollar deficit in the RBI’s forward book swelled to $68.4 billion. The deficit hit a high of $88.7 billion in February 2025 after which it fell to $53.3 billion in August. Latest reports suggest the deficit has surged past $100 billion in March.
“Another key factor that continues to act as a drag on the rupee is the RBI's outstanding forward-book exposure,” Barclays said in a note on Friday.
“In order to prevent a more rapid slide in the rupee, the RBI continues to intervene in the forex market through both spot and forwards. Estimates now point to the RBI's overall forward book deficit exposure reaching around $100 billion,” the note added.
Apart from FPI and foreign direct investor (FDI) outflows, which are exerting pressure on the rupee, Barclays pointed to the worsening balance of payments (BoP) situation as the rupee is vulnerable to oil price shocks.
BoP deficit widened to $24.4 billion in October-December quarter of the current financial year compared to $10.9 billion in the previous quarter.
The rise in BoP deficit was led by capital account turning negative of $10 billion in Q3 of FY26 from a net surplus of $2.1 billion in Q2.
“The West Asia shock comes at a time when India was already seeing capital outflows… the extent of intervention required to keep the rupee steady will be large,” said Gaura Sen Gupta, chief economist, IDFC First Bank.
Sen Gupta added, “The duration of the crisis is unknown. If it’s a long drawn out crisis, then preserving foreign exchange reserves is critical.”
Forex reserves, which hit an all-time high of $728.5 billion in the week ended February 27, 2026, fell to $709.8 billion in the week ended March 13, latest data showed.
Since the end of March last year, reserves increased by $44.4 billion, mainly due to rise in gold reserves.
Foreign currency assets (FCA) — the major component of foreign exchange reserves — has actually fallen in the current financial year by $9.4 billion.
FCA fell $5.6 billion in FY25 also, after increasing by $60 billion in the previous financial year.
“Moreover, the forex reserves will decline due to revaluation loss, owing to dollar strength, a rise in US treasury yield, and a drop in gold prices,” Sen Gupta said.