RBI Considers Strategies to Boost Dollar Inflows Amid Rupee Decline

India's Central Bank Explores Measures to Bolster Foreign Exchange Reserves Amid Rising Pressure on Rupee

India's central bank, the Reserve Bank of India (RBI), is studying ways to mobilise dollar inflows to bolster its foreign exchange buffers and cushion rising pressure on the rupee from a spike in oil prices driven by the Iran war. According to three sources familiar with the discussions, the RBI is considering reviving a mechanism last used in 2013 to draw in dollar deposits from non-resident Indians, as well as eliminating withholding tax on overseas government bond investors to encourage flows.

The rupee has slumped 5.5% this year, sliding to an all-time low of 95.33 per dollar last Thursday, while foreign exchange reserves have fallen from a peak of $728.5 billion. Equity outflows have hit $19 billion over March and April alone, with cumulative 2026 withdrawals reaching about $20.6 billion, exceeding outflows for all of 2025. Foreign investors were net buyers of Indian government bonds in 2025, investing about $6.5 billion, but that momentum has cooled in 2026, with inflows of only around $1.1 billion so far this year.

The RBI has maintained it is comfortable with its reserves - enough to cover 11 months of imports - but the latest policy discussions underscore fresh urgency to bolster defences amid capital outflows. The discussions at the central bank have not been previously reported, though analysts have speculated about how authorities might resurrect elements of their crisis-era playbook.

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Comparison of Foreign Exchange Reserves

According to the RBI, its reserves are currently at $698 billion, which RBI Governor Sanjay Malhotra described as "adequate" in a speech over the weekend. However, reserves have fallen from a peak of $728.5 billion, and analysts caution that the headline figure overstates the RBI's immediate firepower, given its $104 billion in short dollar forward commitments.

The RBI has intervened heavily in the spot and forward FX market to slow the decline in the rupee. The share of gold in forex reserves has also risen, reducing the available foreign currency assets, said Vivek Kumar, economist at Mumbai-based QuantEco Research. "The effective holding of foreign currency assets stood at $449 billion in March (2026)," Kumar said.

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"Persistence of the Middle East crisis could further dent the import cover," said Kumar, adding that this could require policy measures to reduce the trade deficit and encourage capital inflows. The war between the U.S., Israel, and Iran - now in its third month - has weakened the Indian currency, adding to a near 5% fall in 2025.