RBI did not trade in dollars for four months up to March

The Reserve Bank of India (RBI) did not trade in dollars during the four months to March, 2010, despite heavy inflows of foreign capital that led to the Indian rupee rising sharply against the US currency in the last fiscal, the central bank's monthly bulletin today showed.

Meanwhile, later in the day, RBI Deputy Governor Subir Gokarn said at a conference in Delhi, "We have to keep in mind overall pros and cons of managing the currency in order to deal with capital inflows. They still have not, at least in the last two months, started to exert significant pressure in terms of quantum to 2007 estimates."

The rupee was trading at a low of over Rs 50 to the dollar at the start of the last fiscal on April 1, 2009. In April and May last year, the central bank sold a net of over $3.9 billion, which increased the dollar supply in the market.

Over the next few months, the rupee strengthened and on December 1, it closed at 46.31/32 against the US dollar amid sustained weakness in the American currency overseas.

Towards the end of March this year, on account of sustained capital inflows, the rupee rose to 18-month high of 44.95/96.

India has been receiving sustained Foreign Direct Investment (FDI) inflows over the past few years, which partially helped the rupee to strengthen over the past few months.

In 2009-10, India received $25.89 billion in FDI, which was lower than the previous year, but analysts said it was good, given the global credit squeeze.

The Indian rupee appreciated by 12 paise to Rs 45.18 a dollar in early trade today on the back of fresh capital inflows by foreign funds. It had closed 46 paise lower at 45.30/31 on Tuesday.