Key Highlights
- RBI sold a record $398.71 billion of foreign currency on a gross basis during FY2024-25.
- Net sale amounted to $34.51 billion after accounting for purchases.
- Peak monthly intervention reached $69.05 billion in December 2024.
- Rupee hit a low of ₹87.95 per dollar in February 2025, prompting the intervention.
- Interest‑rate ceiling on FCNR(B) deposits was raised by 150 basis points, yet inflows increased marginally.
Detailed Insights
The Reserve Bank of India (RBI) stepped in with its largest intervention to date, selling more than three‑quarters of a trillion dollars in foreign exchange to counter the rupee’s rapid depreciation and global volatilities. The move followed earlier crises in 2008‑09 and 2022‑23, when similar interventions were deemed necessary to maintain currency stability.
Speculative pressure intensified after fears of a Donald Trump return to the U.S. presidency and the prospect of protectionist trade policies. These expectations triggered capital outflows, which compounded the downward trajectory of the rupee and widened foreign‑exchange reserves outflow from roughly $80 billion between September 2024 and January 2025.
While the RBI raised the interest‑rate ceiling on FCNR(B) deposits by 150 basis points to attract foreign investors, the net effect on inflows was modest: an increase of only $7.08 billion from the previous fiscal year.
Key Concepts
- Foreign‑Exchange Intervention: Direct purchase or sale of foreign currency by a central bank to influence its domestic currency’s value.
- Gross vs. Net Sale: Gross sale refers to the total amount sold; net sale accounts for purchases during the same period.
- Rupee Depreciation: Decline in the value of the Indian rupee relative to the U.S. dollar and other major currencies.
- Interest‑Rate Ceiling on FCNR(B): The maximum interest rate allowed on foreign currency deposits in rupees to attract foreign capital.
- Reserve Depletion: Reduction in a country’s foreign‑exchange reserves due to interventions or capital flows.