The Reserve Bank of India (RBI) is grappling with a record net short dollar position, which reached $106.6 billion in May, up from $95 billion in April. This substantial increase reflects the central bank's aggressive interventions to prevent the Indian rupee from depreciating further, especially as it hit successive lifetime lows and traded at a record low of 96.96 per dollar on May 20 amidst volatility from the West Asia conflict. The RBI's actions effectively prevented the rupee from breaching the psychologically significant 97 per dollar mark.
Earlier, in March, the RBI's net short dollar position had surged to $103 billion, marking the first time it surpassed the $100 billion threshold, an increase of $25.4 billion from February. This intervention strategy has been a key tool in defending the rupee, particularly when it weakened to all-time lows against the dollar. The gross forex reserves were reported to be $672 billion. Some market analysts suggest that the appreciation seen in the rupee from its record low levels is partly due to capital inflows following coordinated measures by the RBI and the government to attract foreign investment. Expected inflows are in the range of $40-$70 billion via ECB and FCNR(B) schemes.
Now, the RBI faces a critical decision regarding this hefty net short forward position. There is a consensus among some analysts that the central bank will likely use the anticipated substantial capital inflows to either unwind this record net short forward position or to bolster its foreign exchange reserves, which currently stand at $672 billion, down from a peak of $728 billion in late February. The rupee's defense has been described as India's boldest effort in a decade to support its currency, although there were concerns in April 2026 that such aggressive measures could deter global investors.
