RBI Posts Record $18.65 Billion Net Dollar Purchase in July as Forward Book Swells to $136.77 Billion

The Reserve Bank of India bought more dollars in July than in any month on record. According to the central bank's September bulletin, the RBI made net purchases of $18.65 billion in the spot foreign exchange market in July, narrowly surpassing the previous high of $18.63 billion set in June 2021. It bought $38.42 billion and sold $19.77 billion during the month, compared with a net purchase of just $561 million in June.

The swing was driven by an unusual source of dollars. "The sharp rise in net purchase of dollars in July was largely driven by the dollars mobilised under the FCNR(B)," a currency dealer told Business Standard. Inflows through the Foreign Currency Non-Resident (Bank) deposit scheme and the RBI's associated swap facility had reached $40.82 billion by the end of July, and the central bank absorbed a large share of those dollars into its reserves.

Reserves rebuilt

The effect on reserves was immediate. India's foreign exchange reserves rose to $692.87 billion at the end of July from $666.93 billion at the end of June, a gain of nearly $26 billion in a single month. The final week of July alone added $10.51 billion. Reserves continued to climb into early September, reaching a record $785.7 billion in the week ended 4 September, before easing to $765.9 billion in the week ended 18 September, when the RBI sold dollars and valuation changes reduced the dollar value of non-US holdings.

The July purchases also marked a turnaround in the RBI's posture. The central bank had been a net seller of dollars in 10 of the previous 16 months, as it defended the rupee against capital outflows and the shock of higher oil prices. In the current financial year, it has swung to become a net buyer, with cumulative net purchases of $4.17 billion so far.

The forward book

The other half of the story sits in the forward market. The RBI's outstanding net short dollar position in forwards and futures rose to a record $136.77 billion at the end of July, up from $103.33 billion at the end of June. Of that total, $47.66 billion matures within one year, and $91.54 billion over longer tenors.

A net short forward position means the RBI has committed to deliver dollars in the future. Much of the increase is a mechanical consequence of the swap facility: when banks swap the foreign currency raised through FCNR(B) deposits with the RBI, the central bank receives dollars today and agrees to return them when the swap matures. Headline reserves rise, but so do future obligations.

Analysts therefore look at "net reserves", headline reserves minus the forward short position, as a more conservative measure of the RBI's firepower. On that basis, India's buffer is materially smaller than the headline figure suggests, though still substantial. The composition of maturities matters too: a longer tail of obligations gives the RBI time, while a bunching of near-term maturities could force it to source dollars at inconvenient moments.

The rupee's trajectory

The rupee depreciated 0.71 per cent against the dollar in July, a relatively modest move given the scale of external pressures. The real effective exchange rate, a trade-weighted measure adjusted for inflation differentials, stood at 88.92 in August compared with 88.69 in July. A REER below 100 indicates that the rupee is undervalued relative to its base-year level on this measure, which in principle supports export competitiveness.

Pressure on the currency has persisted since July. Foreign portfolio investors have sold ₹17,131 crore of Indian equities in September alone, and cumulative selling in 2026 has crossed ₹2.41 lakh crore. Brent crude has traded above $100 a barrel for much of the month because of disruption in the Strait of Hormuz, raising India's import bill. The RBI's willingness to both accumulate reserves when inflows are strong and sell them when outflows intensify has kept rupee volatility contained.

Lessons from 2013 and 2021

The RBI has used similar tools before. In 2013, during the taper tantrum, it opened a concessional swap window for FCNR(B) deposits that brought in about $34 billion in roughly three months. The deposits matured in 2016, and the central bank managed the repayment through forward purchases in the intervening years, without a disorderly impact on the rupee. The 2021 record for monthly purchases came in a very different environment, when global liquidity was abundant and foreign capital flooded into Indian markets.

This year's episode combines elements of both. Like 2013, it is a response to external stress. Like 2021, it has produced very large dollar purchases in a short period. The difference is scale: a forward book of more than $136 billion is far larger than anything the RBI carried in 2013.

What it means for markets and policy

For bond and currency markets, the RBI's July behaviour has two implications. First, dollar purchases inject rupee liquidity into the banking system, unless sterilised. The RBI has other tools to manage liquidity, but a large inflow of rupees at a time of elevated inflation risk requires careful handling. Second, the growing forward book means that dollar demand from the RBI will re-emerge as swaps mature, which the market will factor into forward premiums and rupee expectations.

There is also a signalling dimension. By buying aggressively when dollars were plentiful, the RBI demonstrated that it is prepared to lean against the wind in both directions: selling when the rupee is under pressure and buying when inflows surge. That symmetry helps anchor expectations. Currency traders are less inclined to build large one-way positions against the rupee when they know the central bank has both the reserves and the willingness to intervene, and that credibility has been one of India's more valuable assets through a turbulent year for emerging-market currencies.

For companies with foreign-currency exposure, the data reinforce the value of hedging. The RBI has shown it can smooth volatility, but it does not target a level, and a sustained oil shock or a sharp rise in global rates could still push the rupee lower. For importers of crude, electronics and capital goods, hedging costs have become an important line item.

For policymakers, the July numbers are a reminder that India's external position is healthier than in 2013 but still sensitive to oil and capital flows. The record purchases show the central bank taking advantage of a window to rebuild buffers. The record forward book shows that some of that rebuilding has been borrowed from the future. How the RBI manages the unwinding of those positions over the next few years will be one of the quieter but more consequential stories in Indian finance.