RBI sold nearly $400 billion of foreign currency in FY25, sharply higher than previous fiscal

By | May 22, 2025

In a significant move that reflects the central bank’s active role in managing external stability, the Reserve Bank of India (RBI) reportedly sold nearly $400 billion worth of foreign currency in the financial year 2024–25. This marks a sharp increase compared to the previous fiscal year and signals an aggressive strategy by the RBI to curb volatility in the forex markets and defend the rupee amid global headwinds.

What Triggered the Heavy Forex Intervention?

The financial year FY25 saw increased pressure on the Indian rupee, primarily due to:

  • Rising global interest rates, especially in the U.S., which triggered capital outflows from emerging markets.
  • Persistent trade imbalances and higher crude oil import bills.
  • Geopolitical uncertainties, including tensions in Eastern Europe and the Middle East, that disrupted global supply chains and caused flight-to-safety flows toward the U.S. dollar.

To prevent excessive depreciation of the rupee and ensure sufficient liquidity in the foreign exchange market, the RBI intervened actively by selling dollars from its reserves.

How This Compares to FY24

In FY24, the RBI’s forex intervention was relatively modest, estimated at under $100 billion. The leap to nearly $400 billion in FY25 is the largest annual dollar sale by the central bank in over a decade.

This massive intervention demonstrates a clear shift in the RBI’s stance — from a largely passive observer to an active stabilizer of exchange rate movements.

Impact on the Indian Economy

1. Rupee Stability

Despite the global dollar strength and capital outflows, the rupee remained relatively range-bound during FY25, trading mostly between ₹82 and ₹84 per USD. RBI’s dollar sales helped absorb excess demand and smooth out sharp depreciation pressures, thus preserving investor confidence.

2. Foreign Exchange Reserves

India’s forex reserves, which peaked above $645 billion in FY24, have now come down to around $585 billion. While still comfortable, this decline reflects the cost of currency stability. The RBI appears to be balancing between short-term volatility management and long-term reserve adequacy.

3. Inflation and Imports

By stabilizing the rupee, the RBI has indirectly helped manage imported inflation — especially important given India’s dependence on crude oil and electronics. A weakening rupee would have made imports costlier, further fueling inflation already pressured by global food and energy prices.

RBI’s Strategy: Defensive or Tactical?

According to economists and market analysts, the RBI’s actions were not purely defensive. Instead, they are part of a calibrated approach that aims to:

  • Smooth volatility, not fix the exchange rate.
  • Prevent disorderly movements that could spook investors.
  • Send a signal to markets that the RBI is willing to use its reserves if necessary.

Experts believe the central bank prefers a market-driven exchange rate but intervenes when speculative flows or panic-driven moves distort fundamentals.

Market Reactions and Investor Sentiment

The heavy intervention, though large in scale, was well-received by markets. It helped anchor inflation expectations and reduced currency-related risks for corporates and importers. The stock markets also found support from currency stability, especially in sectors like oil & gas, IT, and pharma that are sensitive to forex movements.

Foreign investors, while cautious, appreciated the transparency and policy consistency displayed by the RBI during this turbulent year. Net FPI outflows, though significant in the first half of FY25, moderated in the latter half as confidence returned.

Future Outlook: Will RBI Continue to Intervene?

As we move into FY26, the big question is whether this level of intervention will continue. Several factors will determine that:

  • Global interest rate trends: A potential pivot by the U.S. Federal Reserve toward rate cuts could ease pressure on emerging market currencies.
  • Domestic macro fundamentals: India’s improving current account balance and strong GDP growth may reduce the need for aggressive intervention.
  • Geopolitical climate: A stable external environment would reduce safe-haven demand for the U.S. dollar.

While RBI is expected to remain watchful, analysts believe that intervention intensity may moderate in the coming months unless a new external shock emerges.

Key Takeaways

  • RBI sold nearly $400 billion in forex reserves in FY25, a record intervention to stabilize the rupee.
  • This move cushioned the currency from external shocks, prevented sharp depreciation, and curbed imported inflation.
  • Forex reserves dipped but remain adequate, reflecting a strong buffer for the economy.
  • The intervention signals RBI’s willingness to use its war chest when needed, without deviating from a market-driven exchange rate framework.