The Reserve Bank of India (RBI) ramped up dollar purchases in February, signaling a shift toward rebuilding foreign exchange reserves after the rupee stabilized following the announcement of a US-India trade deal in the same month.
Net Forward Sales and Reserve Depletion
Despite heavy spot purchases, net forward sales stood at $77.7 billion, indicating continued reliance on forward markets. While February provided an opportunity for reserve rebuilding, a significant portion of the reserves was depleted in March when the rupee came under pressure due to the US-Iran conflict, which began on February 28.
RBI's Intervention in February
According to the RBI Bulletin released in April, the central bank was a net buyer of $7.4 billion in the over-the-counter (OTC) market, with gross purchases of $21.4 billion and sales of $14 billion, injecting Rs 66,881 crore into the system. In the futures segment, it remained neutral with zero net intervention, while trimming its outstanding net sales position to $522 million.
Shift in Strategy
The intervention marked a sharp jump from January's $2.5 billion, suggesting the RBI moved quickly to absorb inflows as volatility eased. The rupee's stability after the February 6 trade announcement likely boosted sentiment and triggered capital inflows, giving the RBI space to accumulate reserves without pushing the currency higher. This marks a reversal from February 2025, when the RBI sold $1.6 billion to support the rupee, and from FY25, when it was a consistent net seller averaging $2.9 billion monthly.
Outward Remittances Dip
Outward remittances softened in February, falling 12.8% month-on-month to $2.3 billion, though they remained 19% higher than a year earlier and 5% below the FY25 monthly average of $2.4 billion, suggesting a pause after recent strength. Travel continued to dominate at $1.3 billion, accounting for 55.9% of outflows, despite a 21% sequential decline; it still rose 19.8% year-on-year but remained below its FY25 average.
