India’s foreign exchange reserves rose to $700.95 billion for the week ending 6 April. This was up from $697.12 billion in the previous week.
The increase was $3.83 billion over the week. The figures refer to total forex reserves held by India.
The increase in India’s foreign exchange reserves to a record $700.95 billion indicates the central bank is actively absorbing dollar inflows. This action effectively prevents the rupee from appreciating too rapidly, creating a more stable and predictable environment for the currency. We should interpret this as a strong signal that the central bank prefers to manage a tight range for the USD/INR pair.
Given this heavy intervention, we expect currency volatility to remain suppressed in the coming weeks. Looking back at 2024 and 2025, we saw similar periods of reserve accumulation lead to one-month implied volatility on the USD/INR pair dropping below 5%, some of the lowest levels globally. This makes selling options, such as short-dated straddles or strangles, a potentially profitable strategy that capitalizes on a lack of sharp price movement.
The central bank’s dollar-buying activity creates a soft floor for the USD/INR exchange rate, making any significant strengthening of the rupee unlikely for now. This suggests that selling out-of-the-money call options on the USD/INR is a favorable trade, as the central bank’s presence will likely cap any sudden upward spikes in the pair. Outright bets on a stronger rupee seem particularly risky in this environment.
These inflows are supported by strong fundamentals, as foreign investors continue to be attracted to India’s high-yield debt market. With India’s 10-year government bond yield currently standing at a firm 7.15%, the interest rate differential with developed economies remains highly attractive for carry trades. This persistent flow of capital gives the central bank even more firepower to continue its management strategy.
However, we must watch for any sudden shifts in global risk sentiment, which could quickly reverse these capital flows. We saw a brief but sharp market reaction in late 2025 when concerns over global supply chains caused a temporary halt in foreign investment. A similar event could force the central bank to switch from buying dollars to selling them, rapidly unwinding the current low-volatility regime.
