RBI sold $3.18 bn in August to stem rupee slide

The Reserve Bank of India pumped in $3.18 billion in the forex market to arrest the slide of the rupee in August, when it fell to an all-time low against the dollar.

 

As per the RBI's monthly bulletin released today, the central bank bought $724 million from the market in August, leading to net sales of $2.46 billion.

 

However, the dollar sales in August were almost half the amount in July, when the central bank pumped in $6.026 billion. In August 2012, the RBI had sold $552 million.

 

The Indian currency touched a record low of 68.85 against the dollar on August 28 amid concerns about a widening current account deficit (CAD) and fears of capital outflows when the US Federal Reserve starts tapering its stimulus programme.

 

However, the central bank and the government took steps that helped the rupee to recover. The local currency closed at 61.39 today, the highest level since August 13.

 

To stem the rupee's decline, the RBI had raised funding costs for banks in July. Steps were also taken to reduce gold imports, a key reason for the record CAD in 2012-13, when it touched 4.8 per cent of GDP or $88.2 billion.

 

The CAD was 4.9 per cent of GDP, or $21.8 billion, in the April-June quarter of the current fiscal. The government aims to narrow the gap between foreign exchange outflows and inflows to $70 billion this fiscal.

 

The RBI's bulletin said that in the forward dollar market, outstanding dollar sales rose to $9.05 billion in August from $4.74 billion in July.

 

Meanwhile, the RBI said Indian companies raised $2.31 billion from overseas markets in the form of external commercial borrowings and foreign currency convertible bonds in August.