RBI sold $6 bn in July, highest since Jan 2012

Intervention yielded results as rupee weakened only 1.65% in that month

The Reserve Bank of India (RBI) had sold a massive $ 5.9 billion in the spot segment of the foreign exchange market in July to stem the fall in the rupee. This was the highest intervention by the central bank since January 2012 when it sold $7.3 billion in the foreign exchange market, latest data released by the central bank showed on Tuesday. In June, RBI had sold $2.2 billion.

RBI’s intervention had yielded the desired results as the rupee weakened only about 1.65 per cent in that month. Till about two weeks back, the rupee lost about 23 per cent against the dollar this financial year as it touched an all time closing low of 68.83 on August 28. In the forward market, RBI sold $4.7 billion in July.

RBI has taken a cautious policy regarding selling its foreign exchange reserves, as those could only cover about six months of import. According to analysts, an import cover of eight-10 months is seen as providing comfort to a currency’s strength.

The country’s foreign exchange (forex) reserves fell to a 39-month low as on August 30.

Total forex reserves were $275.49 billion, which fell by $2.23 billion during the week. Such levels were earlier seen in the week ended June 11, 2010 when reserves were  $272.7 billion.

Following a slew of measures announced by new RBI Governor Raghuram Rajan on his first day in office — that is last Wednesday — the rupee recovered 5.7 per cent in the last four trading sessions.

The central bank announced several steps to increase capital flows into the country to help the rupee, which has depreciated 17.6 per cent against the dollar in the current financial year.