RBI sold $3.39 billion in March to support rupee

The Reserve Bank of India (RBI) stepped up the sale of foreign currency in March to check a steep depreciation of the rupee.

According to the latest data released by the central bank, the sale of dollars during the month was estimated at $3.75 billion, the highest since October 2008. The intervention came after the rupee hit an all-time low of 52.19 against the US dollar on March 2. On a net basis, RBI sold $3.39 billion (Rs 17,827 crore) in March as the rupee stayed below 50.40 against the dollar through the month.
 

MANAGING VOLATILITY
Purchase and sale of US dollars by RBI

MonthPurchaseSaleNet Apr-084,325.000.004,325.00 May-081,625.001,477.00148.00 Jun-081,770.006,999.00-5,229.00 Jul-083,580.009,900.00-6,320.00 Aug-083,770.002,560.001,210.00 Sep-082,695.006,479.00-3,784.00 Oct-081,960.0020,626.00-18,666.00 Nov-082,355.005,456.00-3,101.00 Dec-082,005.002,323.00-318.00 Jan-091,055.001,084.00-29.00 Feb-091,063.00833.00230.00 Mar-09360.003,748.00-3,388.00 Total26,563.0061,485.00-34,922.00 All data in $mn                                                                                       Source: RBI

During the last financial year, on a net basis, RBI sold a record $34.92 billion (Rs 1,78,592 crore) in foreign exchange as the rupee came under pressure due to the absence of inflows from foreign institutional investors (FIIs). In 2008-09, there was an outflow to the tune of $15 billion through the FII window.

Outflow through the portfolio investment route, which includes American Depository Receipts and Global Depository Receipts, were estimated at $13.86 billion, data released in the RBI Bulletin revealed. In contrast, RBI was a net purchaser in the previous financial year.

On a net basis, the central bank purchased foreign currency worth $78.20 billion (Rs 3,12,053 crore) as FIIs pumped money into the Indian stock markets. According to RBI, FIIs invested $20.33 billion during 2007-09, while portfolio investment was of the order of $29.40 billion.

During 2008-09, along with the sale of dollars, the revaluation of the currency also had an impact on India’s foreign exchange reserves. During the year, forex reserves fell by $57.73 billion. After October, when RBI stepped in through a record sale of dollars to support the rupee from falling, it had lowered its intervention to ensure that adequate rupee liquidity was available in the market.

Its October sales had sucked out Rs 28,316 crore from the system and resulted in overnight call rates shooting past the 20 per cent mark. Even in March, liquidity had tightened in the second half of the month due to payment of advance tax by companies.

RBI has followed a policy of stepping into the market to check steep volatility to ensure that the financial system and companies are protected.