Breaking the trend of a dollar selling spree since September 2011, the Reserve Bank of India bought dollars worth $1.11 billion in February. It also sold $1.44 billion in the spot market in the same month to stem the slide in value of the rupee.
On a net basis, the sell position was $320 million for the reporting month.
Treasury officials said this was purely done as a liquidity management exercise to postpone the cash tightness, as otherwise it would have meant buying more rupees to provide dollars on maturity. It should not have any bearing on the exchange rate.
It re-entered a forward dollar sales contract for March by rolling over $1.11 billion maturing in February to postpone further drain on the rupee’s liquidity. The net forward sales dues were at $1.45 billion as of February.
From September to February, the RBI has sold a net $20.14 billion in the spot market, according to the RBI bulletin for April 2012.
RBI began to pump dollars from September 2011 to contain volatility in the rupee. The rupee hit a low of 49.76 to the dollar on February 10, its lowest level in that month.
Rupee lost 15.8 per cent of its value in 2011, when it plunged to an all-time low of 54.30 in December. The dollar selling spree has put tremendous pressure on liquidity. The rupee resources were sucked out on injection of foreign currency. Heavy cash withdrawal from banks by the public for festivals, state elections and lagged government spending has also added to the resource crunch.