The Reserve Bank of India’s recent defence of the rupee vs dollar is weighing on the nation’s foreign exchange reserves, prompting calls from some analysts to scale back future intervention.
India’s forex reserves, excluding gold, are now just enough to cover for 8.7 months of imports, the lowest in three years, according to data compiled by Bloomberg. The rupee weakness comes at a time when India is facing a rising import bill due to higher crude oil prices, with implications for both its economy and markets.
The more the RBI intervenes, the lesser firepower it will be left with, which can lead to more problems if the ongoing crisis in the Middle East continues, said Indranil Pan, chief economist at Yes Bank Ltd. “On the external sector, the shock absorber has to be the exchange rate only. There is definitely a need for the RBI to be slightly more flexible in terms of allowing rupee depreciation.”
In recent weeks, the RBI has stepped up intervention in the currency market to shield the rupee, which fell to a fresh record low of 92.48/dollar on Wednesday (18 March 2026).
India’s forex reserves fell to $563 billion in the week of 6 March, from a peak of $591 billion in June. Overall reserves, which have been supported by higher gold prices, declined by the most since November 2024.
India needs a forex reserve buffer of at least $1 trillion for robust intervention capacity, according to former RBI Deputy Governor Michael Patra.
The RBI’s ammunition to support the rupee is lower after accounting for its outstanding dollar sales, with its forward book at $67.8 billion at the end of January.
“Defending a particular level of the rupee could become very problematic very quickly, if the fundamentals have shifted for good,” said Dhiraj Nim, FX strategist at Australia and New Zealand Banking Group. “The RBI can let the rupee adjust a bit more before the level of reserves becomes a concern.”
