RBI intervenes more through forwards in foreign exchange market

The Reserve Bank of India (RBI) continued to purchase more dollars through the forwards market compared with the spot market in July as well, as the former approach of purchasing more dollars in the spot market was leading to infusing a lot of excess liquidity in the system.

RBI data released for the month of July show the outstanding net forward purchases stood at $4.60 billion compared with $2.59 billion in the previous month. The outstanding net forward purchases were close to the $5.17 billion made in April. The net purchases of foreign currency from the spot market was $169 million compared with $565 million in the previous month.

Earlier, the strategy followed by the central bank was to buy more dollars from the spot market than forwards. For example, in May, the net purchases of foreign currency from the spot market was $2.58 billion compared with outstanding net forward purchases worth $1.86 billion.

RBI has been boosting its foreign exchange reserves by purchasing dollars from the market in a bid to reduce volatility in the rupee against the dollar. Data released last Friday showed RBI's foreign exchange reserves for the week ending August 28 was $351.92 billion.