RBI sold record $20.2 billion in November to back rupee amid FPI outflows

Forward book dollar deficit ballooned to $58.9 bn

The Reserve Bank of India (RBI) sold a record $20.2 billion in the foreign exchange market in November to contain rupee volatility against the greenback, pushing its net short position in the forward market to $58.9 billion by the month’s end, according to the central bank’s latest monthly bulletin. By comparison, the RBI’s net forward sales position at the end of October stood at $49.18 billion.

 

In November, the central bank bought $30.8 billion and sold $51.1 billion of foreign currency in the spot market, marking aggressive intervention. The rupee depreciated by 0.48 per cent during the month.

 

Market participants attributed the intervention to heavy foreign portfolio investor (FPI) outflows triggered by a surge in US Treasury yields following Republican candidate Donald Trump’s decisive victory in the US presidential election.

 

The dollar also strengthened as the Federal Reserve signalled fewer rate cuts than expected, with the US central bank reducing rates by 25 basis points (bps) in early December, against expectations of a 50 bps cut. 

 

“The RBI had to step in as FPIs sold domestic equities and the dollar surged,” said Amit Pabari, managing director at CR Forex.  Foreign investors net sold $2.1 billion worth of Indian equities in November, with the dollar index rising 1.69 per cent to 105.73, reflecting the greenback’s strength against a basket of six major currencies.

 

The RBI’s intervention contrasts with its position in the first half of the financial year (April-September), when it was a net buyer, purchasing $8.52 billion in the spot market. However, by the end of November, the central bank had become a net seller, offloading $20.9 billion.

 

A dealer at a state-owned bank noted that the forward market deficit aligned with expectations. “The forward number was anticipated to reach around $60 billion in November, so this comes as no surprise. The RBI intervened across markets as volatility surged post-Trump’s win, and foreign investors sold heavily,” the dealer said.

 

“The RBI was intervening in the market because we were seeing volatility after Trump’s win. Yen was also down. FII were selling,” said a dealer at a state-owned bank. “The forward number was expected to be around $60 billion in November, so there is no surprise there,” he added.

 

In the spot market, the RBI net sold $1.9 billion in November 2023. By contrast, the central bank was a net buyer of $41.27 billion in the previous financial year.