The Reserve Bank of India has built up a net short dollar forward position of roughly $107 billion as of May 2026. India’s central bank is now carrying the largest derivatives-based currency defense in its history, and it got there fast.

To put that number in perspective, the position sat at $67.8 billion just four months earlier in January 2026. By February 2025, it had already reached $88.7 billion, which seemed aggressive at the time. The May figure blows past both of those marks.

What the RBI is actually doing

A “short dollar forward book” means the RBI has committed to selling dollars at a future date at pre-agreed prices. The central bank is making a massive leveraged bet that it can keep the rupee from cratering, without immediately draining its cash reserves.

On the spot side, the RBI sold $53.13 billion worth of dollars during the fiscal year ending in 2026. And on May 26 alone, the central bank conducted dollar buy-sell swap auctions worth $5 billion to inject liquidity while managing currency pressure.

The rupee hit near-record lows around 97 INR per dollar in May 2026 before clawing back some ground.

Why the rupee is under siege

Oil import costs have surged, which is particularly painful for a country that imports roughly 85% of its crude. Foreign portfolio investors pulled more than $20 billion out of Indian markets during certain periods, creating sustained selling pressure on the rupee. Geopolitical tensions, particularly involving Iran, have added another layer of uncertainty.

India’s foreign exchange reserves sit somewhere between $681 billion and $688 billion. That sounds like a comfortable cushion until you account for the $107 billion in forward commitments that will eventually need to be settled. The effective reserve buffer is meaningfully smaller than the headline number suggests.

What this means for investors

Forward positions don’t disappear. They mature, and when they do, the RBI has to deliver those dollars. If the rupee is still weak at settlement, the central bank takes real losses.

In June 2026, the RBI introduced hedging cost subsidies for FCNR(B) deposits, which are foreign currency non-resident bank deposits, to encourage dollar inflows from the Indian diaspora. It also provided tax relief on government securities to make rupee-denominated assets more attractive.

The scale of the RBI’s intervention raises a question that matters beyond India’s borders: how sustainable is this strategy? The speed of the buildup, nearly doubling in four months, suggests the pressure is intensifying faster than policymakers anticipated.