India’s central bank sold a net $6.1 billion in foreign exchange during May as it stepped up efforts to stabilize the rupee, which came under intense pressure from soaring global oil prices and heightened geopolitical tensions in the Middle East.
The intervention by the Reserve Bank of India (RBI) reflects the growing impact of rising crude oil prices on one of the world’s largest energy importers, where higher import costs have weighed heavily on the domestic currency.
RBI Steps Up Dollar Sales to Stabilize the Rupee
According to the RBI’s latest monthly bulletin, the central bank purchased $22.2 billion while selling $28.3 billion in the foreign exchange market during May, resulting in a net sale of $6.1 billion.
The intervention came as the Indian rupee weakened to a record low of 96.96 against the US dollar, driven largely by rising international oil prices linked to escalating tensions involving Iran.
The RBI’s currency operations were aimed at limiting excessive volatility and maintaining orderly market conditions.
Oil Price Shock Weighed Heavily on the Currency
India relies heavily on imported crude oil, making the economy particularly sensitive to global energy price fluctuations.
The spike in oil prices increased the country’s import bill, placing additional pressure on the rupee as demand for US dollars rose to finance energy imports.
The geopolitical uncertainty surrounding the Middle East further contributed to investor caution and currency market volatility.
RBI Introduces Measures to Boost Dollar Inflows
In addition to intervening directly in the foreign exchange market, the RBI introduced several policy measures designed to attract additional foreign currency into the country.
These included tax incentives for foreign debt investments and initiatives encouraging overseas foreign currency deposits. The measures helped improve market sentiment and supported the rupee during the latter part of the month.
Meanwhile, the RBI’s outstanding net forward dollar sales increased to a record $106.6 billion at the end of May, compared with $95.3 billion in April.
The central bank’s gold holdings remained unchanged at 880.52 metric tonnes.
Foreign Investment Sentiment Shows Improvement
Foreign investors continued to reduce their exposure to Indian equities through June, but market sentiment improved following the RBI’s intervention and liquidity measures.
Bond markets recorded stronger foreign inflows during June, while both bond and equity investments remained positive during July, indicating a gradual recovery in investor confidence.
The RBI also noted that India’s foreign exchange reserves continue to provide import cover for approximately 10 months, helping strengthen the country’s external financial position.
Economic Challenges Persist
Despite signs of improving capital inflows, India’s economy continues to face challenges from elevated global oil prices.
Higher energy costs have increased import expenses, while weaker monsoon conditions have created additional pressure on agricultural output. However, authorities say stable core inflation and adequate public food stocks continue to provide important support for the broader economy.
RBI Expected to Remain Vigilant
Following the release of the data, the Indian rupee closed 0.3 percent lower at 95.5650 per US dollar.
Market analysts expect the Reserve Bank of India to continue closely monitoring currency markets and remain prepared to intervene if global geopolitical developments or further oil price volatility place renewed pressure on the rupee.