RBI cautious on dollar sale

Latest data shows the central bank sold only $107 mn in the spot market, on a net basis, in May

The central bank has been cautious in selling dollars to arrest the rupee's decline. The latest data show it sold only $107 million in the spot market, on a net basis, in May - the month in which the rupee declined by five per cent against the dollar. In May, while RBI sold $3.1 billion, it purchased almost an equivalent amount.

Bankers say the central bank's cautious approach to use its forex reserves in supporting the rupee is because the present level ($285 billion as on June 28) could cover not more than six and a half months of import. RBI had purchased $518 million in April.

The present weakening of the currency started from May, after the April trade deficit figures were released. In April, this deficit widened to $17.8 billion or 70 per cent higher than in March. The jump was due to a sharp increase in gold and silver import, prompted the government to raise import duties. The worst performing currency in Asia since May, the rupee has slipped about 11 per cent against the greenback during the period.