RBI 'passively' absorbing dollar inflows over past sessions, say traders

The Reserve Bank of India has likely been "opportunistically" absorbing dollar inflows over the past few sessions, probably to replenish the forex reserves expended on supporting the rupee over the past few months, four traders said on Wednesday.

The rupee, supported by these inflows and the dollar's decline, climbed past 86.50 to a one-month high on Wednesday. It has gained just over 1 per cent this month, after having slid 2 per cent over January and February as the greenback rallied.

The Indian currency would likely have appreciated further if not for the RBI's dollar purchases, as evidenced by state-run banks bidding for dollars in recent sessions, the traders said.

Inflows related to inter-company borrowings and repatriation of corporate profits are usual in March, the last month of the financial year.

The central bank has been "opportunistically absorbing these flows" without having a specific level in mind, a senior trader at a bank said.

"They have a large gap to fill given how much (forex) reserves have been spent" to support the rupee as it plumbed lifetime lows frequently in the past two months, the trader added.

India's forex reserves declined to a nine-month low of about $624 billion in late January. While they have recovered to $654 billion through March 7, they are still about $50 billion less than the peak hit in October.

"The last few days, they (RBI) are doing (the dollar buying) passively," a chief FX dealer at a private sector bank said.

"It's to be expected that they will take advantage of any counter-cyclical dips (on dollar/rupee) to buy into reserves."

The traders spoke on the condition of anonymity since they are not authorised to speak to the media. The RBI did not immediately respond to an email seeking comment.