RBI Sells Nearly $400 Billion in FY25

In an extraordinary move to defend the Indian rupee against global currency market volatility, the Reserve Bank of India (RBI) sold a record $398.71 billion worth of foreign currency on a gross basis in FY2024-25. This marks the highest-ever intervention by the central bank, reflecting its aggressive stance amid geopolitical uncertainty and the fear of global economic disruption, particularly linked to potential shifts in US leadership and trade policy.

Why in News?

The Reserve Bank of India released data showing an all-time high gross sale of foreign currency during FY2024-25, largely triggered by rupee depreciation and heightened global economic risks. The data highlights India’s strategic forex management efforts and the substantial financial cost associated with defending the currency.

Background and Context

• The RBI intervenes in the currency market to stabilize the rupee, especially during periods of volatility.
• Previous interventions include the 2008-09 global financial crisis and the 2022-23 volatility caused by rising inflation and war in Europe.

Key Facts

• Gross forex sale in FY25: $398.71 billion
• Previous high (2022-23): $212.57 billion
• Net forex sale (FY25): $34.51 billion
• Rupee’s record low: ₹87.95 per dollar in February 2025
• Forex reserves fall: ~$80 billion (from late Sept 2024 to mid-Jan 2025)
• Peak monthly intervention: $69.05 billion in December 2024

Factors Triggering the Intervention

• Speculative currency movement due to fears of Donald Trump’s return to the US presidency.
• Expectations of protectionist trade policies caused foreign investors to pull out.
• External shocks added pressure on the rupee and capital flows.

RBI’s Additional Measures

• Raised the interest rate ceiling on FCNR(B) deposits by 150 basis points to attract foreign deposits.
• Resulted in only marginal increase in inflows: $7.08 billion in FY25 vs. $6.37 billion in FY24.

Significance

• Demonstrates the RBI’s proactive approach in ensuring currency stability.
• Highlights the delicate balance between currency protection and reserve depletion.
• Reveals limited success of deposit schemes in boosting inflows amid deep uncertainty.