RBI becomes a net buyer of US dollar after four months in December

Forward book turned positive after two months

The Reserve Bank of India (RBI) became a net buyer of the US dollar in the spot foreign exchange market after four months in December last year, according to the central bank’s monthly bulletin.

The RBI reported a net purchase of $2.06 billion worth of the greenback. During that month, it bought $31.73 billion and sold $29.67 billion of the American currency.

In contrast, the RBI had recorded a net sale of $1.9 billion in the spot market in November.

The central bank also altered its stance in the rupee forwards market, transitioning to a net buyer after two months. By the end of December, net outstanding forward purchases amounted to $2.1 billion, a significant shift from the net outstanding forward sales of $11.9 billion in November.

“They (RBI) certainly bought (in the forwards market) in order to curb further appreciation,” said Indranil Pan, chief economist at YES Bank.

In December, the rupee appreciated by 0.2 per cent. For 2023, the Indian currency experienced a marginal depreciation of 0.6 per cent against the greenback, marking the least volatility seen in nearly three decades.

“They (RBI) have been building reserves. They sold around 83.30 per dollar, and now they are building reserves,” said a foreign exchange dealer at a state-owned bank.

The headline foreign exchange reserves, excluding the forwards book, stood at $623.2 billion as of the end of December. These reserves expanded by approximately $60 billion in 2023.

As of December 30, 2022, India's foreign exchange reserves amounted to $562.8 billion.

In the current financial year, the rupee has depreciated by 1 per cent, so far. It fell 7.8 per cent in the previous financial year (FY23). The local currency had appreciated by 0.16 per cent in the first six months of the calendar year 2023.