Context:
The Reserve Bank of India (RBI) refrained from purchasing US dollars in July 2025, marking the first zero-dollar purchase month since February 2014. Instead, the central bank sold dollars to stabilise the rupee.
Key Highlights:
- Rupee Depreciation:
- The rupee fell 2.23% in July 2025, its sharpest monthly fall of the year.
- Earlier declines: May (1.21%), January (1.16%), February (1.02%).
- RBI’s Intervention:
- No dollar purchases in July, instead, RBI sold $2.54 billion in the spot forex market.
- Shift from reserve accumulation to active currency stabilisation.
- Forex Reserves Impact:
- Reserves fell by $10.87 billion, from $6,99,736 million (July 4) to $6,88,871 million (August 1).
- Decline also influenced by fluctuations in Euro, Pound, and Yen values.
- External Pressures:
- US imposed 50% tariff on Indian goods (effective August 27, 2025).
- Geopolitical tensions (Russia-Ukraine, Israel-Iran).
- Foreign investor outflows added stress on the rupee.
Reason for Refraining from Dollar Purchases
| Reason | Details |
|---|---|
| Stabilise the Rupee | Rupee depreciated 2.23% in July 2025; RBI sold $2.54 billion to curb volatility. |
| Policy Priority Shift | RBI prioritized currency stability over reserve accumulation to prevent inflation, investor panic, and rising import costs. |
| External Pressures | US tariffs, foreign capital outflows, and geopolitical tensions contributed to rupee depreciation, RBI’s dollar sales eased market panic. |
Impact
| Impact | Details |
|---|---|
| Rupee Stability | Reduces short-term volatility and restores market confidence. |
| Forex Reserves Dip | Reserves fell by $10.87B, continued interventions could weaken buffers. |
| Imported Inflation | Helps limit costlier imports, especially crude oil. |
| Trade Competitiveness | Moderate depreciation supports exporters while avoiding extreme volatility. |
| Market Sentiment | Signals RBI’s proactive stance, reassuring investors and curbing panic outflows. |
