RBI Begins Unwinding Record Dollar Position
The Reserve Bank of India faces the delicate task of reducing a record foreign-exchange forward position built up while defending the rupee against persistent depreciation pressures.
The central bank’s net short-dollar forward position reached approximately $106.7 billion in May 2026, according to calculations based on RBI data. The position represents commitments by the RBI to sell dollars at future dates and was accumulated as part of its efforts to manage volatility in the Indian currency.
Rather than relying entirely on its headline foreign-exchange reserves, the RBI used forward-market interventions to provide dollars and limit sharp movements in the rupee. This approach allowed the central bank to support the currency without immediately reflecting the full scale of intervention in its reported reserves.
The RBI has now started gradually trimming this position. Market estimates suggest that the central bank may seek to reduce its forward obligations by around $10 billion to $15 billion every month, depending on capital inflows, dollar demand and prevailing market conditions.
Unwinding the position presents a significant challenge. Buying dollars to meet or roll over forward commitments could place renewed pressure on the rupee, while allowing contracts to mature without careful management may affect liquidity and foreign-exchange markets.
Recent measures designed to attract foreign capital could provide the RBI with an opportunity to rebuild reserves and reduce its forward liabilities. India had attracted more than $20 billion through a foreign-currency deposit initiative by July 17, strengthening the country’s balance-of-payments position.
The RBI must balance several objectives: maintaining orderly currency markets, rebuilding its foreign-exchange reserves, managing forward obligations and avoiding excessive volatility in the rupee. The pace of unwinding is therefore expected to depend heavily on global oil prices, capital flows and broader movements in the US dollar.
