India’s foreign exchange reserves stood at $698.49 billion on 20 April.
This was down from $703.31 billion in the previous reporting period.
We see that India’s foreign exchange reserves have dipped below the $700 billion mark. This nearly $5 billion drop in a single week suggests the Reserve Bank of India (RBI) is intervening in the currency market. The central bank is likely selling dollars to prevent the rupee from weakening too quickly.
This intervention comes as no surprise given the global environment. The US Dollar Index recently broke above the 107 mark for the first time this year, and with Brent crude prices staying firm around $95 a barrel, pressure on the rupee is mounting. We have also seen foreign institutional investors turn into net sellers, pulling over $2.5 billion from Indian equities in April 2026 alone.
The RBI’s actions may cap the upside on USD/INR for now, keeping spot prices in a tight range. However, this active defense signals underlying weakness, which means implied volatility on rupee options is likely to rise. We should expect a divergence between the stable spot rate and the increasing cost of hedging future moves.
Given this, we should consider buying long-dated USD/INR call options, perhaps with a 3 to 6-month expiry. This strategy benefits from a potential rise in volatility and a directional move if the RBI eventually eases its intervention. It is a calculated way to position for a depreciation of the rupee later this year.
We saw a similar playbook back in 2022 when aggressive US Federal Reserve rate hikes led the RBI to spend heavily from its reserves to manage the rupee’s fall. That period showed us that while intervention can smooth the path, the central bank cannot fight a strong global trend indefinitely. The current reserves are substantial, but continued pressure will force a re-evaluation.
For the immediate two to four weeks, however, selling short-dated option strangles on USD/INR could be profitable. The RBI’s confirmed presence in the market creates a temporary ceiling and floor, making it ideal for a range-trading strategy. We can aim to collect premium while the central bank absorbs the market pressure.
