Key Points
- RBI’s net dollar purchases in March 2025 hit a four-year high of $14.4 billion
- Central bank conducted three major dollar-rupee swaps totaling $25 billion in Q1 2025
- March saw $41.5 billion bought and $27.2 billion sold by RBI in forex markets
- Indian rupee appreciated by 2.3% against the US dollar during March
- RBI’s net forward sales fell to $84.4 billion, indicating rollover or neutralization of short positions
- Experts warn future dollar sales could impact rupee liquidity and forex reserves
- India’s forex reserves stand at $691 billion, below the September 2023 record high
New Delhi: The Reserve Bank of India (RBI) ramped up its dollar purchases in March 2025, marking its highest monthly net acquisition in the foreign exchange market since June 2021. This assertive move, aimed at boosting liquidity in the banking system, saw the central bank’s net dollar purchases soar to $14.4 billion for the month.
RBI’s Strategic Forex Swaps to Support Banking Liquidity
Between January and March 2025, the RBI executed three major dollar-rupee buy-sell swaps totaling $25 billion. Of these, two auctions—each worth $10 billion—were conducted in March alone. In such swaps, the RBI buys dollars in exchange for rupees, injecting liquidity into the domestic banking system and managing currency volatility.
March Sees Massive Dollar Activity and Rupee Gains
According to the RBI’s latest monthly bulletin, the central bank bought a total of $41.5 billion and sold $27.2 billion in the forex market during March 2025. This resulted in a net purchase of $14.4 billion, a dramatic turnaround from February’s net sale of $1.6 billion.
The robust intervention coincided with a 2.3% appreciation of the Indian rupee against the US dollar in March, reflecting improved market sentiment and effective currency management by the central bank.
Forward Sales Decline Signals Shift in RBI’s Strategy
RBI’s net forward sales a measure of its future dollar commitments fell to $84.4 billion at the end of March, down from $88.7 billion in February. This decline suggests that the RBI has been rolling over or neutralizing its dollar short positions to avoid draining liquidity from the banking system.
Gaura Sen Gupta, Chief Economist at IDFC First Bank, noted, “If RBI hadn’t executed the $20 billion swap in March, the net figure would have been negative, indicating net sales. These interventions are crucial for maintaining adequate liquidity and ensuring the smooth transmission of monetary policy.”
Future Dollar Sales Could Impact Liquidity and Reserves
Experts caution that as these dollar short positions mature, the RBI will eventually need to sell dollars in exchange for rupees. This could tighten rupee liquidity and potentially reduce India’s foreign exchange reserves.
Currently, India’s forex reserves stand at $691 billion, still robust but below the all-time high of $704.9 billion recorded in September 2023.
What’s Next for RBI and the Indian Economy?
With the RBI focused on supporting liquidity and managing the impact of monetary policy adjustments, significant changes in its forward book are unlikely in the short term. However, the central bank may make marginal adjustments depending on capital flows and market conditions.
