Reserve Bank of India Expands Forward Contracts to Defend Rupee

The Reserve Bank of India increased its use of forward contracts to stabilize the rupee in March 2026 after the currency breached the 92-per-dollar level and reached a record low of 92.89 against the US dollar. The central bank's net-short dollar book, measuring forward dollar sales across onshore and offshore markets, approached $100 billion, surpassing the previous record of $88.8 billion established in February 2025.

To counter the effects of a resurgent dollar, high US tariffs, and equity outflows, the RBI focused on buy-sell swaps onshore and non-deliverable forwards in offshore markets. This strategy allows the bank to defend the currency without immediately depleting India's $717 billion in foreign exchange reserves.

Madhavi Arora, chief economist at Emkay Global Financial Services Ltd, argued that allowing the rupee to freely absorb shocks is not an option during times of stress when speculative dominance can put the currency on a slippery slope. Meanwhile, strategists at Barclays Plc warned that the maturing derivatives contracts used in this defense could create recurring dollar demand, potentially hindering a sustained recovery for the rupee.