Net inflows under non-resident deposits rose sharply to $119.2 billion during April-August 2026, taking total foreign exchange reserves to a high of $785.71 billion on 4 September. Foreign currency assets (FCAs)—the usable component of reserves, excluding gold, Special Drawing Rights (SDRs), and the reserve position in the IMF—rose to $648.17 billion.
The forex reserves had climbed by more than $120 billion since June when the Reserve Bank of India (RBI) launched the special Foreign Currency Non-Resident Bank (FCNR-B) deposits scheme. This came at the cost of India paying unusually high interest rates, while the RBI assumed all foreign exchange depreciation risk.
The forex reserves have been declining sharply since then. On 9 October, barely in a month, the reserves declined to $726.03 billion, down by $59.68 billion (50 percent of net FCNR-B inflows). The FCAs declined by $51.12 billion to $597.61 billion. Half of the reserves built-up is gone in a third of its collection time (June-August 2026).
This massive running down of the forex reserves must have jolted the RBI. It seems to have panicked.
On 10 October, it decided to establish a special dollar window for public sector oil market companies (OMCs) to take out their demand from the forex market. It severely restricted forex hedging and introduced a new measure—foreign exchange risk reserve (FERR)—to mandate the authorised dealers/banks to keep 20 percent of the Indian rupee equivalent of foreign exchange derivative contracts, making hedging much costlier. Some other measures were also taken.
What kind of panic measures has the RBI taken? Will these arrest the free fall of the foreign currency reserves and stabilise the rupee? What more will the RBI do?