Rupee's REER eases to 101.49 in March, says RBI's monthly bulletin

Outstanding forward market short position climbs to $88.7 billion

The real effective exchange rate (REER) of the rupee continued to ease, dropping to 101.49 in March, down from 102.37 in February, according to the Reserve Bank of India’s monthly bulletin. REER had climbed from 103.66 in January 2024 to 108.14 in November 2024 before retreating to 107.2 in December 2024.

 

“The rupee depreciated in March initially, but then stabilised, and we started seeing flows. REER is a measure compared to movements in other currencies. In April, REER is expected to hold steady at these levels because all other currencies are either stable or strengthening; it’s not just the rupee,” said Sakshi Gupta, principal economist at HDFC Bank.

 

The bulletin noted that the recent drop in the 40-currency REER also reflects the narrowing of India’s inflation gap with its key trading partners.

 

Meanwhile, the RBI’s outstanding net short dollar position in the forward market climbed to $88.7 billion by the end of February, up from $77.5 billion at the end of January.

 

In the spot market, the RBI net sold $1.6 billion in February, following a net sale of $11.1 billion in January. The central bank bought $45 billion and sold $46.6 billion in foreign currency during February. The rupee had depreciated by 1.02 per cent in February.

 

The central bank had net bought $8.5 billion in February 2024. For 2023-24, the RBI net purchased $41.27 billion.

 

“The swap auctions conducted by the RBI are reflected here,” said a dealer at a state-owned bank. “We also have some long-term positions here,” he added.

 

Of the $88 billion net short dollar position, $14.7 billion was in one-month contracts, and $18.8 billion was in one- to three-month tenures. The largest amount of $45 billion was in swaps spread across three-month and one-year tenures. The remaining $10 billion swap was for more than a year.