Indian Rupee Nears Record Low as RBI Forex Reserves Plunge $51 Billion in Four Weeks
nashnova research
The rupee sits just 0.2% from its all-time low of 96.97 hit in May, and the RBI has burned through $51 billion in reserves in four weeks without halting the slide — the gap between the pace of reserve depletion and the effectiveness of intervention is exposing how much policy room the central bank actually has.
$51 billion gone in four weeks — where did the money go?
RBI foreign-exchange reserves fell from a $785 billion peak the week of September 4 to $734 billion four weeks later — a $51 billion drawdown.
This means → more than a third of the $133 billion in dollar deposits the RBI had attracted through a special window has already been consumed.
Traders note the RBI is simultaneously selling dollars in the spot market and running sell/buy swaps in the forward market to mop up liquidity — both operations directly weigh on the headline reserve figure.
In plain terms = the central bank is spending money on two fronts at once — propping up the exchange rate with one hand, managing liquidity with the other — so reserves are draining fast.
The headline says $734 billion — how much is actually usable?
The RBI's net short position on its forward book — dollars it has already committed to deliver in the future — stands at $200 billion.
This means → the truly deployable reserve buffer is far smaller than the $734 billion on the books; the real ammunition is considerably less than the number markets see.
Governor Sanjay Malhotra sought to reassure markets, saying reserves still cover about 11 months of imports, the external-debt ratio is 94.4%, and the rupee may in fact be undervalued.
But Ritesh Bhansali, deputy CEO of Mecklai Financial Services, was blunt: "RBI intervention is the only thing holding the rupee at current levels."
The RBI just hiked rates — why is the rupee still falling?
The central bank shifted its policy stance to "calibrated tightening" this week and delivered its first rate hike in nearly four years, yet the rupee kept sliding.
Traders say the hike is not enough to offset multiple external headwinds: the rupee has lost more than 7% this year, making it Asia's worst-performing currency.
Three forces are pressing simultaneously — ① India is a major oil importer, acutely sensitive to Middle East tensions; ② foreign investors have net-sold roughly $30 billion in Indian equities this year; ③ surging U.S. Treasury yields are sapping the appeal of Indian assets.
In plain terms = the rate hike is a band-aid, but the wound was inflicted by three blades at once — oil prices, foreign-capital flight, and a strong dollar.
What does the market expect next?
HDFC Bank forecasts the rupee will trade in a 96–98 range against the dollar in the second half of this fiscal year.
Mecklai warns that a break below 97 could open the door to 98.50.
Ashhish Vaidya, head of treasury at DBS Bank India, argues "the only way out is a one-shot hike of around 100 basis points" — but adds that "the longer the geopolitical conflict lasts and the higher oil goes, the narrower the window becomes."
What should we watch from here?
HDFC Bank chief economist Sakshi Gupta wrote in a research note that the rupee's fundamental drivers are oil prices, equity valuations, foreign outflows, the AI trade, and dollar strength — rate hikes offer limited short-term defense for the exchange rate.
This reflects a shift in the market's core variable: the question is no longer about interest rates, but about the gap between reserve-depletion speed and intervention effectiveness.
The key checkpoints ahead: oil-price trajectory and Middle East geopolitics — these two variables will determine how long the RBI can hold the line.
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