RBI's Dollar Sales and Strategic Interventions: A Shield for the Indian Rupee?

The Reserve Bank of India (RBI) has emerged as a pivotal player in stabilizing the Indian rupee amid geopolitical tensions and shifting global economic dynamics. Recent reports indicate the central bank has ramped up dollar sales and liquidity injections, signaling a proactive stance to counter currency volatility. Here’s a deep dive into the RBI’s strategies and what they mean for investors.

The Dollars, Swaps, and Stabilization Play

In February 2025, the RBI executed a $10 billion forex swap—purchasing dollars from commercial banks in exchange for rupees—to address a liquidity deficit of ₹1.7 lakh crore. This move injected ₹86,000 crore into the banking system, easing liquidity strains and supporting the rupee’s value. The intervention came as the rupee had depreciated from ₹83/$1 to near ₹88/$1 over the prior year, partly due to India-Pakistan tensions and global dollar strength.

The swap also bolstered forex reserves, which hit a six-month high of $688.129 billion by April 2025. Analysts note this reflects the RBI’s dual goals: stabilizing the rupee and shoring up reserves to withstand external shocks.

The Profit Motive: Forex Reserves and the Coming Dividend Payout

The RBI’s foreign exchange interventions aren’t just about stability—they’re also a revenue driver. Interest earnings on foreign currency assets surged by 40% year-on-year to $17 billion by December 2024, driven by higher U.S. treasury yields. This windfall will likely fuel the central bank’s FY2025 surplus transfer to the government, expected to exceed last year’s record ₹2.1 lakh crore payout.

However, the exact payout hinges on provisioning decisions. The RBI’s economic capital ratio stood at 28.5% as of March 2025—above the recommended 20.4–25.4% range—but analysts warn that balance sheet expansion from liquidity injections could necessitate higher reserves.

Geopolitical Risks and the RBI’s Defensive Posture

The India-Pakistan conflict has amplified market uncertainty, pushing the RBI to adopt a cautious stance. While it avoided aggressive interventions despite the rupee’s dip to ₹88/$1 in late 2024, traders speculate the central bank stepped in to curb speculative positions when the rupee breached ₹84/$1 in early 2025.

“The RBI’s priority is to prevent panic, not fix exchange rates,” says Gaura Sengupta of IDFC First Bank. This selective approach aligns with its strategy to use reserves judiciously while avoiding overt market manipulation.

Liquidity Management and Policy Transmission

The RBI’s February forex swap complemented a 25-basis-point repo rate cut (to 6.25%), aimed at easing borrowing costs. However, banks delayed passing on lower rates due to lingering liquidity shortages. The central bank’s subsequent Open Market Operations (OMOs)—including ₹750 billion in bond purchases by April—aimed to inject liquidity, reducing yields on the 10-year government bond to 6.35%.

These measures signal the RBI’s broader focus: balancing currency stability with domestic growth.

Risks and Investor Considerations

While the RBI’s actions have stabilized the rupee, challenges remain. Projections suggest the USD/INR pair may trade between ₹83.80 and ₹85 in the near term, but geopolitical flare-ups or Fed policy shifts could disrupt this range. Investors should also monitor:
- The May surplus announcement: A larger-than-expected payout could signal confidence in forex reserves.
- Oil prices: Lower crude costs (down to $59/barrel in April) reduce import pressures, indirectly supporting the rupee.
- Global dollar trends: A Fed rate cut or easing U.S. economic data could weaken the dollar, favoring emerging market currencies like the rupee.

Conclusion: A Delicate Balance

The RBI’s interventions—from dollar sales to OMOs—highlight its dual mission: shielding the rupee from volatility and supporting India’s economic growth. With forex reserves at six-month highs and interest income surging, the central bank is well-positioned to weather near-term risks. However, the upcoming May surplus declaration and geopolitical developments will test its strategy.

For investors, the rupee’s resilience in 2025 underscores its potential as a beneficiary of RBI’s proactive measures and global macro tailwinds. Yet, caution remains critical: the rupee’s stability ultimately hinges on how effectively the RBI navigates a landscape of geopolitical uncertainty and shifting global capital flows.

In this context, the RBI’s mantra—“intervene selectively, but act decisively”—could be the rupee’s best defense.