RBI Skips Dollar Purchases in July for First Time in Over 11 Years as Rupee Weakens

The Reserve Bank of India (RBI) did not buy U.S. dollars from the foreign exchange market in July 2025, marking the first such instance in more than 11 years. Instead, the central bank sold $2.54 billion during the month to control volatility as the rupee came under intense pressure. The last time the RBI made zero dollar purchases was in February 2014.

According to RBI data, India’s foreign exchange reserves fell sharply by $10.87 billion, from $699.736 billion on July 4 to $688.871 billion by August 1. Reserves include foreign currency assets, gold holdings, Special Drawing Rights (SDRs), and India’s position in the International Monetary Fund.

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Experts said the RBI’s unusual stance reflected the challenges faced by the rupee, which slipped 2.23 % in July — the steepest monthly fall of 2025. This came after earlier declines of 1.21% in May, 1.16% in January, and 1.02% in February. With this, the rupee has lost 3.65% so far in FY26 and 3.48% year-to-date, marking its sharpest depreciation in two financial years.

Shift in RBI’s Intervention Strategy

Analysts explained that instead of accumulating reserves by purchasing dollars, the RBI turned to selling them to defend the rupee. The central bank also used forward markets to manage volatility. “The RBI did not purchase any U.S. dollars in July because of significant pressure on the rupee, which led the central bank to intervene by selling dollars to stabilise the currency rather than buying them,” said Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP.

Reports suggest the RBI has become more conservative and selective in intervening in the spot currency market. Even as the rupee hit record lows multiple times, the regulator has opted for measured actions instead of aggressive intervention.

External and Domestic Pressures on the Rupee

The decline in the rupee was driven by both global and domestic factors. External shocks included uncertainty over U.S. tariffs, the prolonged Russia–Ukraine conflict, and rising tensions between Israel and Iran. Domestically, sustained foreign investor outflows added to the downward pressure.

Adding to the concerns, U.S. President Donald Trump imposed a steep 50% tariff on Indian goods starting August 27. This move, one of the highest global tariff rates, dampened dollar inflows, reduced export competitiveness, and hit market sentiment.

Conclusion

The RBI’s decision to avoid dollar purchases in July reflects a shift towards defensive operations aimed at protecting the rupee in turbulent times. While this strategy led to a decline in forex reserves, it highlights the central bank’s priority of ensuring currency stability over reserve accumulation. Going forward, the rupee’s trajectory will likely depend on how global geopolitical risks, trade tensions, and capital flows evolve.