Why RBI Sold $6.1 Billion in Forex Markets in May

The Reserve Bank of India sold a net $6.1 billion in the spot foreign exchange market in May 2026, data released in its monthly bulletin on Wednesday showed, as policymakers fought to contain a record slide in the rupee driven by surging oil prices.

The intervention was the second straight month of heavy net dollar sales, though the pace eased from April's net sale of $8.9 billion. The rupee plunged to an all-time low of 96.96 against the dollar during May, battered by crude prices that spiked on the back of the Iran war and higher global bond yields.

The oil shock that broke the rupee

The Iran conflict drove a sharp rise in oil prices that became the primary force behind the rupee's record depreciation. India imports the bulk of its crude and is acutely sensitive to such swings. The fall to 96.96 per dollar was uncharted territory. In its bulletin, the RBI acknowledged the pressure but pointed to recovering foreign investment flows as evidence of a “revival of confidence in the economy.”

How the RBI fought back

The central bank's response was multi-pronged. Gross purchases in May rose to $22.2 billion from $16.2 billion in April, while gross sales climbed to $28.3 billion from $25.2 billion. The narrower net sale alongside higher gross flows suggests a two-way strategy: supplying dollars to cap rupee weakness while buying during bouts of strength to manage volatility.

Beyond market operations, the RBI launched policy measures to draw dollar inflows, including tax cuts on foreign debt investments and incentives for banks to raise overseas foreign currency deposits. The year-over-year contrast is stark. In May 2025, the RBI was a net purchaser of $1.8 billion. Cumulative net sales since end-March 2026 stood at $15 billion, compared to a net purchase of just $0.1 billion in the same period a year earlier.

Forward book hits record levels

Net outstanding forward dollar sales reached a record $106.7 billion at end-May, widening from $95.3 billion in April and $65.2 billion a year earlier. The forward book allows the RBI to intervene without immediately draining rupee liquidity, but the scale of commitments means future dollar delivery obligations are now unprecedented.

Reserves, gold, and the confidence buffer

Despite heavy intervention, foreign exchange reserves remain comfortable, providing cover for roughly 10 months of imports. Gold holdings have held steady at 880.52 metric tonnes since May 22, suggesting the RBI has not sold gold to supplement its dollar firepower. Net inflows into non-resident Indian accounts slowed to $1.3 billion in April and May, down 29.5 percent from $1.9 billion a year earlier.

Where the rupee stands now

As of Wednesday, July 22, the rupee closed at 95.5650 per dollar, down 0.3 percent and marking its weakest level in two months. While the currency has recovered somewhat from its May record low, it remains under pressure and the RBI's intervention posture shows no sign of a fundamental shift.