RBI’s $72-billion forward bet: Why is the central bank short on the dollar while stockpiling reserves? What does it mean for the rupee?

The Reserve Bank of India (RBI) is playing high-stakes chess with the global currency markets—quietly adjusting its positions, slashing forward dollar bets while simultaneously strengthening its reserves. But what is the central bank aiming for? And more urgently, what does this mean for the rupee, which now sits at a critical support zone between 85.10 and 85.30 against the dollar?

The macro backdrop is anything but calm. With U.S. President Donald Trump’s ‘reciprocal’ tariff deadline looming on July 9, and the Federal Reserve delaying expected rate cuts, the rupee finds itself caught in a global crossfire of uncertainty. Market participants are now closely watching whether the rupee can hold this support zone or break below it.

According to the RBI’s monthly bulletin, as of April 30, the central bank was holding a net short position of $72 billion in the forward currency market.

This is a significant figure, and Amit Pabari, founder and managing director of CR Forex helps decode its importance. “Currently, RBI’s total reserves are close to $700 billion, out of which around $589 billion is in foreign currency assets — primarily in U.S. dollars, euros, pounds, and a few others,” he explains. “If 75-80% of that is in dollars, that is about $471 billion in USD reserves. So when you compare that with a $72-billion forward sell position, it translates to a roughly 15% short exposure on the dollar. That’s not small.”

Before moving ahead, let’s understand the history behind the RBI’s forward short position.

Interestingly, this $72 billion short has been building up over time. A year ago, in April 2024, the RBI’s forward position stood at just -$16 billion. It shot up to -$89 billion by late 2024, before easing slightly to the current level. Much of this shift happened between October 2024 and February 2025, a period marked by significant global volatility. “The dollar index climbed from 99 to 110 in that period,” notes Pabari. “This was because the Fed delayed rate cuts, the market started pricing in a possible Trump victory with inflationary risks, and the U.S. economy was doing exceptionally well. To manage rupee depreciation pressures, the RBI intervened aggressively.”

Anitha Rangan, economist at Equirus Securities, said, "Unwinding of forward dollars is a result of a decline in the forward book until Feb’25 to -$88 billion, when foreign exchange reserves also saw a simultaneous decline. But to moderate the impact on spot dollar, and the RBI did act on both the forward and spot side, while the forward book has been slightly higher versus historical precedence. Prospectively, accretion in the spot book is easier with valuation gains. Notably bulk of the gains in the spot reserves are valuation-led while the forward book requires actual accretion, which could take longer."

Now the market is focused on the RBI’s next move, especially amid growing global uncertainty. The Trump tariff threat is real, and only a handful of countries, such as the U.K., have signed trade deals to avert potential disruption. At the same time, there’s no clear direction from the Fed, and geopolitical risks continue to loom. Against this backdrop, what is the RBI likely to do?

“In periods of uncertainty, the RBI typically adopts a two-pronged strategy,” says Pabari. “First, it continues to build its reserves. Second, it starts reducing the forward short position. This approach gives it both breathing room and flexibility. But it also means the central bank will not allow the rupee to appreciate too much, especially if inflows give it a chance to unwind its forward shorts.”

This brings us to the near-term outlook for the rupee. Pabari believes there’s an 80-85% chance that the rupee will bounce back above 86 levels, with strong support in the 85.10-85.30 zone. Several factors support this view. First, foreign institutional investors (FIIs) have already pulled $2 billion out of India’s debt market in June, and more outflows could follow. “India’s interest rate differential has narrowed after a 50-bps rate cut by the RBI, making Indian debt less attractive,” Pabari explains.

Second, the July 9 deadline for Trump’s proposed tariffs is approaching fast, and no meaningful trade deal has been reached with major economies apart from the U.K. This adds to investor anxiety. Third, the dollar index (DXY) is currently in oversold territory. “Any positive surprise from the U.S. economy—jobs data, inflation, GDP—could lift the DXY back to the 99-100 range,” Pabari adds.

Finally, the RBI itself may step in to buy dollars around the 85 level, using it as an opportunity to unwind part of its forward short. “This will limit rupee appreciation and create buying pressure for the USD/INR pair,” he says.

Narender Singh, Smallcase Manager & Founder, Growth Investing, said, "Think of it like this — the RBI is saving up dollars for a rainy day (buildup of reserves) while settling its old borrowings (unwinding forwards). This gives it a cleaner balance sheet, more power to defend the rupee, and less exposure to external risks."

In the end, the RBI’s aggressive forward strategy isn’t just about currency stabilisation—it’s a broader risk hedge against an increasingly unpredictable world. From election-driven trade policies to monetary policy delays and volatile capital flows, the central bank seems to be planning not just for today, but for every possible scenario tomorrow.

As the rupee tests its lower band, and the world waits for Trump’s next tariff play, one thing is certain: the RBI is not playing defence. It’s thinking three moves ahead.