RBI Sold $6.1 Billion in May to Defend Rupee as Iran War Sent Oil Soaring

The Reserve Bank of India (RBI) was a net seller of $6.1 billion in the foreign exchange market in May, data released Wednesday confirmed, marking aggressive intervention as surging oil prices from the Iran war pushed the rupee to an all-time low.

The RBI purchased $22.2 billion and sold $28.3 billion during the month, resulting in the net sale, according to the central bank’s July bulletin. In April, the RBI had sold a net $8.9 billion.

The Indian rupee fell to a record low of 96.96 per dollar in May, pummelled by rising oil prices and higher global bond yields. The currency was shored up by firm RBI intervention over multiple trading sessions and a series of policy measures designed to attract dollar inflows, including tax cuts on foreign debt investments and incentives for raising overseas foreign-currency deposits.

The RBI’s net outstanding forward dollar sales rose to a record $106.6 billion at end-May, compared with $95.3 billion at end-April, indicating a further buildup of the central bank’s forward market position. The data also showed that the central bank’s gold holdings remained unchanged since May 22 at 880.52 metric tonnes.

On Wednesday, the rupee closed down 0.3% at 95.5650 per dollar, hitting its weakest level in two months.

India saw heavy selling by foreign investors in its equity markets until June, but sentiment partially reversed after the RBI took dollar-inflow measures. Foreign inflows into bond markets rose in June and have remained positive in July, while equity markets have also seen inflows this month, the bulletin said.

The RBI said foreign exchange reserves remain comfortable, providing cover for 10 months of imports.

**Economy Navigates External Pressures**

In the same bulletin, the RBI said the recovery in foreign investment flows into India shows a “revival of confidence in the economy.” The Indian economy has faced pressure from rising oil prices globally and a weak monsoon domestically.

Although food prices have risen, core inflation remains in check, the bulletin said. It added that sowing has been delayed due to uneven rains, but “high public foodgrain stocks should provide some cushion against price pressure.”

The RBI said India’s external sector remains steady, with an improving outlook supported by foreign investment inflows, even as the global economy faces elevated uncertainty from geopolitical tensions and supply-chain pressures. The central bank noted that the domestic economy had navigated external uncertainties well, supported by healthy demand conditions and resilient industrial and services activity.

“Amidst these uncertainties, India remains among the fastest-growing major economies across the globe and has been able to sustain the momentum in economic activities through June,” the RBI said. Both industrial and services sector indicators remained firm, it added.

**Trade and External Debt**

According to the Economic Times, which reported on the bulletin, merchandise exports rose 16% year-on-year to $129.32 billion during April-June 2026-27, while imports increased 18% to $270.15 billion, resulting in a trade deficit of $37.42 billion, compared with $20.85 billion a year earlier.

The RBI said momentum in external trade has been sustained, with exports and imports recording strong growth in the first quarter of 2026-27. It added that the recent operationalisation of the India-UK Comprehensive Economic and Trade Agreement and progress on other bilateral trade agreements could provide a further boost to trade.

The bulletin also said India’s external debt-to-GDP ratio remained above 20% in March 2026, broadly unchanged from a year earlier, while the reserves-to-external debt ratio remained above 90%. Foreign exchange reserves provide cover for more than 10 months of goods imports and around 88.5% of external debt outstanding as of end-March 2026.

The RBI’s latest assessment comes as markets closely watch the central bank’s currency operations, crude oil prices and capital flows for clues on the rupee’s trajectory and the broader external-sector outlook.