RBI dollar intervention to support rupee intensified markedly last week, with the Reserve Bank of India selling at least 8 billion dollars in the foreign exchange market, according to six bankers familiar with the central bank’s activity. The estimates of the total intervention varied, ranging as high as 15 billion dollars for the week, underscoring the scale of the central bank’s effort to stabilise the domestic currency.
The bankers, who spoke on condition of anonymity because they are not authorised to speak to the media, said the Reserve Bank of India’s presence in the market was substantially larger than in previous weeks. One banker estimated the dollar sales at around 15 billion dollars, while another, based at a state run lender, put the figure closer to 10 to 11 billion dollars for the week ending September 4. That latter estimate alone was at least three times the amount sold in the week before, indicating a sharp escalation in intervention activity within a short period. The Reserve Bank of India did not immediately respond to a request for comment.
What Enabled the RBI’s Dollar Intervention to Support Rupee
The sustained RBI dollar intervention to support rupee has been made possible in large part by a surge of policy driven dollar inflows into the country. A discounted hedging facility introduced for overseas borrowings by state run firms and banks, together with a free of cost hedging facility allowing banks to raise overseas foreign currency deposits, has together drawn in more than 136 billion dollars.
According to one of the bankers, these inflows have given the central bank considerably more room to conduct sizeable interventions without depleting its reserves excessively. The additional dollar supply flowing into the system through these facilities effectively provided the Reserve Bank of India with the ammunition needed to defend the rupee more aggressively than it might otherwise have been able to.
The results of the intervention were evident in the currency’s performance. Sustained dollar selling helped lift the rupee to an over two month high of 94.2850 against the US dollar on September 3, marking a notable recovery after a period of pressure on the currency.
Impact on Foreign Exchange Reserves and Banking Liquidity
India’s foreign exchange reserves stood at an all time peak of 740.8 billion dollars as of August 21, providing the central bank with a substantial buffer to draw upon. J.P. Morgan has since estimated that the figure had climbed even higher, giving the Reserve Bank of India additional scope to intervene without raising concerns about reserve adequacy.
However, the RBI’s dollar selling operations carry a secondary effect that policymakers must manage carefully. Each intervention drains rupee liquidity from the banking system, a factor of particular significance given that banking system liquidity had recently hit a record high. Excess liquidity in the system can push interbank borrowing costs below the central bank’s policy rate, which in turn can blunt the effectiveness of monetary policy transmission. By selling dollars and absorbing rupees from the market, the Reserve Bank of India appears to be addressing two objectives simultaneously, supporting the currency while also tempering surplus liquidity within the banking sector.
Balancing Currency Stability with Monetary Policy Goals
The scale and timing of the RBI dollar intervention to support rupee highlights the delicate balancing act facing India’s central bank. On one hand, a stronger and more stable rupee helps contain imported inflation and supports investor confidence in the currency. On the other, large scale interventions must be calibrated carefully so as not to disrupt the broader liquidity conditions that influence lending rates and monetary policy transmission across the economy.
With foreign exchange reserves at record levels and inflows continuing through the central bank’s hedging facilities, the Reserve Bank of India appears well positioned to maintain an active presence in the currency market in the near term. Market participants will likely continue to watch closely for signs of the scale and frequency of further intervention, as well as any accompanying measures the central bank may take to manage rupee liquidity in the banking system going forward.
Published in SouthAsianDesk, September 8th, 2026
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