The Reserve Bank of India (RBI) net sold $384 million in the domestic foreign exchange market in January, snapping two months of dollar purchases by the central bank.
In January, the RBI bought $12.9 billion and sold $13.29 billion in the currency market, the central bank’s latest Bulletin showed.
The RBI’s outstanding forward book, however, recorded a spike in January, rising to $21.73 billion from $10.97 billion a month ago. An increase in the outstanding forwards book implies dollar purchases in the forwards segment by the RBI.
In January, the rupee appreciated sharply versus the dollar, gaining 0.9 per cent. Towards the end of January, however, the local currency experienced sharp volatility ahead of the Union Budget on February 1 and the US Federal Reserve’s policy statement later the same day. The RBI intervenes in the foreign exchange market through dollar sales or purchases in order to rein in excessive volatility in the exchange rate.
“As of February 2023, India held the fifth largest foreign exchange reserves in the world. India’s foreign exchange reserves recorded a decline of $11.7 billion in February 2023 and stood at $560.0 billion as on March 10, covering more than nine months of imports projected for 2022-23,” the RBI staff wrote in the March 2023 Bulletin.
The RBI’s reserves had reduced by $100 billion from February to September of 2022, partially due to dollar sales as the central bank sought to shield the rupee from excess volatility amid the Ukraine war and the Fed’s tightening cycle.
From June to October, the central bank sold dollars every month. In June, the net sales were at $3.7 billion, followed by $19.05 billion in July. In August, the RBI net sold $4.3 billion, followed by $10.36 billion in September and $922 million in October. In November and December, 2022, the central bank net bought $4.36 billion and $3.8 billion, respectively.
In April and May of 2022, the RBI had net bought $1.9 billion and $2 billion, respectively, in the foreign exchange market.