India’s central bank has a problem most traders would recognize: it built a massive position, and now it needs to exit without moving the market against itself. The Reserve Bank of India’s short-dollar forward book hit $106.7 billion in May 2026, a record that makes the institution one of the largest directional currency bettors on the planet.
How the RBI got here
The position didn’t materialize overnight. It ballooned by $26.5 billion in a single month, surging past $104 billion by the end of March 2026. The RBI was essentially selling dollars forward to prop up the Indian Rupee, which was getting hammered by a cocktail of geopolitical stress tied to Iran, spiking oil prices, and foreign portfolio investors heading for the exits.
The intervention wasn’t limited to forward contracts. The RBI was actively selling dollars in both onshore and offshore spot markets, which drained its foreign exchange reserves to a one-year low of $681.4 billion by the week ending May 22, 2026.
On March 28, the central bank also took the unusual step of capping banks’ onshore net open forex positions at $100 million. Previously, banks could hold positions up to 25% of their net worth. The cap effectively forced banks to dump long-dollar bets, and those forced liquidations created potential mark-to-market losses across the banking sector.
