The most recent information in the central bank’s December bulletin showed that the Reserve Bank of India (RBI) net sold $922 million on the foreign exchange market in October.
The statistics revealed a significant decrease in the RBI’s net long forward book, indicating that the central bank had heavily interfered in the forwards section of the currency market even though the net sale of dollars in October was much smaller than the $10.36 billion in September.
In October, the outstanding net forward purchase book of the RBI was $241 million, down $10.18 billion from the $10.42 billion it had been in September, according to the data. At the end of the previous fiscal year, the net forward buy book was $65.79 billion, a significant decrease from that amount.
The RBI has dramatically broadened the scope of its operations in the foreign currency market over the past several months to now cover both the forwards and futures segments. These are additional to its spot market dollar sales interventions.
In order to curb the rupee’s excessive volatility, the RBI sells dollars from its foreign exchange reserves. The rupee has lost 10.17% of its value against the US dollar so far this year. The national currency declined 1.7% in October.
The RBI drains rupees from the banking system when it sells dollars on the spot market, tightening the liquidity situation.
The RBI taking advanced delivery of maturing holdings and then choosing not to roll those over, according to analysts, is likely what caused the significant fall in the forwards book.
Analysts speculated that the central bank may have wanted to stop a rapid decline in the headline foreign exchange reserves, which fell by about $100 billion from late February to the end of September. The RBI had stated in September that the revaluation of reserves in response to a stronger US currency was mostly to blame for the decline in reserves in the current fiscal year.
The RBI recorded net purchases of $1.9 billion and $2 billion in the foreign exchange market in April and May, respectively. But from June to October, the central bank sold dollars every month.
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