India has significantly increased the use of an important financial tool to protect the value of the rupee, as the currency recently fell to an all-time low against the US dollar.

According to sources, the Reserve Bank of India (RBI) has expanded its net-short dollar position to nearly $100 billion. This figure reflects how much the central bank has sold US dollars in advance (forward contracts) across both domestic and international markets. For comparison, this number stood at $67.8 billion in January and previously reached a record of $88.8 billion in February 2025.

This sharp increase comes at a time when emerging market currencies, including the Indian rupee, are under pressure due to a strong US dollar. Even before recent global tensions, the RBI had been actively intervening in currency markets to stabilize the rupee, especially as high US tariffs triggered heavy foreign investor withdrawals from Indian equity markets.

Experts believe that allowing the rupee to fluctuate freely during such volatile times can be risky. As noted by Madhavi Arora, excessive speculation in foreign exchange markets can quickly weaken the currency beyond control, making intervention necessary.

To manage the situation, the RBI has mainly operated in offshore markets using instruments like non-deliverable forwards (NDFs). These contracts allow the central bank to influence exchange rates without immediately using up its foreign exchange reserves. Additionally, RBI has used short-term dollar-selling contracts and buy-sell swap arrangements within India to balance liquidity.

Despite these interventions, India’s foreign exchange reserves remain strong at around $717 billion as of early March, close to record levels.

However, experts warn that the growing use of such derivative tools may create challenges in the future. As these contracts mature, there will be continuous demand for US dollars, which could limit the rupee’s recovery in the long run.

The Indian rupee has already touched record lows, crossing the critical level of 92 per US dollar in March, raising concerns among businesses and policymakers.

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