The Reserve Bank of India sold $2.92 billion in the foreign exchange market during November — the highest monthly dollar sales in two and a half years.
The central bank also sold dollars in the forward market, $1.6 billion, for the first time in the current financial year.
The central bank sold dollars to arrest the rupee fall.
The rupee was Asia’s worst performing currency in 2011 as it depreciated by almost 19 per cent. As a result of the dollar sales, the country’s foreign exchange reserves depleted by around $8 billion in November.
| SAVING THE RUPEE RBI intervention in foreign exchange market (in $ bn) | |
| 2008-09 | (-)34922 |
| 2009-10 | (-)2660 |
| 2010-11 | (+)1690 |
| *2011-12 | (-)4706 |
| Note: (-/+) denotes foreign currency sold/purchased; * Till November | |
In November, the rupee suffered its worst monthly fall in 16 years, plunging nearly seven per cent as persistent dollar demand from importers and portfolio outflows on global risk aversion pounded the local unit.
The sharp fall of the rupee had prompted the central bank to announce a series of measure to arrest the fall.
On December 15, RBI restricted rebooking of cancelled forward contracts and reduced the net overnight open position limit or trading limits for banks in the foreign exchange market. The move was aimed to curb volatility in the foreign exchange market, which had nearly doubled in less than six months.
Market participants now expect the RBI to look for opportunities to buy dollars.
“It is likely that the intervention in December was even higher as RBI would have sold dollars and taken other measures together to stem volatility in rupee,” said Abhishek Goenka, CEO, India Forex Advisors. “Forex reserves also eroded in tandem. Now that rupee is around 51.5 levels, RBI may look for an opportunity to buy dollars to compensate the fall in reserves.”
RBI has said it would intervene only to smoothen volatility in forex market and without targeting a specific exchange rate on the rupee. After hands-off approach for nine months, RBI intervened in the foreign exchange market in September by selling $845 million. In October it sold $943 million.
