ndia’s forex reserves have fallen by $38 billion since February as the RBI fights to manage volatility but analysts warn the slide may not be over
The Indian rupee breached the 96 mark against the US dollar on Monday, extending a relentless slide driven by surging crude oil prices, persistent foreign institutional investor (FII) outflows, and a strengthening dollar index now hovering near the 98–99 level.
Speaking to ET Now, Naveen Mathur, Director of Commodities, Currencies and International Business at Anand Rathi Shares, flagged the compounding nature of the pressure. “The dollar index strength, the internal problems with respect to the current account deficit because of high oil prices, and persistent FII outflows, all these factors are making pressure on the rupee,” he said.
Oil is the core problem
India imports roughly 85% of its crude oil from overseas, making the rupee acutely sensitive to global energy prices. With Brent crude at $109 per barrel and WTI at $104, India’s own crude basket is estimated at $150, a level that keeps the current account deficit wide and dollar demand elevated.
The Western Asia crisis, including tensions around Iran, has kept a firm floor under oil prices, with no meaningful cooldown in sight. If prices remain above $100 per barrel and the RBI steps back from intervention, Mathur warned that the rupee could find a level of around 102 against the dollar.
RBI has spent $38 billion; $28 billion in March alone
India’s foreign exchange reserves have dropped from approximately $728 billion before the conflict began to around $690 billion, a drawdown of nearly $38 billion. Critically, $28 billion of that was deployed in March alone, highlighting the scale of the RBI’s market operations.
Despite the heavy spending, the central bank has been explicit that it is not defending any specific level for the rupee. Its stated objective is to prevent excessive volatility rather than peg the currency at a fixed rate. India currently holds about 11 months of import cover, providing some buffer, but the pace of reserve depletion has raised questions about how long active intervention can continue.
The FII picture adds a separate layer of stress. In March alone, foreign investors pulled out approximately $11 billion from Indian markets — more than half the $19 billion in outflows recorded across the entire calendar year 2025. Mathur attributed this less to India’s fundamentals, which he described as relatively strong, and more to a broader global risk-off sentiment driving capital toward safe-haven assets.
“It is more of a fear factor in spite of fundamentals remaining strong,” he noted. “It is the geopolitics which is making people jittery.”
Trade balance data reinforces the concern. India’s trade deficit widened to approximately $283 million in the latest reading, up from $259 million the prior month, another indicator of sustained dollar outflows.
Where does the Rupee settle?
Mathur drew parallels to previous currency stress episodes in 2013 and 2022, both of which the rupee eventually navigated. His base case is that the currency consolidates around the 95–96 range once global conditions stabilize but the timeline depends heavily on whether oil prices cool and FII sentiment turns.
For now, the RBI’s strategy remains one of managed volatility, smoothing the descent without drawing a line in the sand.
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