The Reserve Bank of India (RBI) seems to have been shopping for dollars for three straight months, taking advantage of a stable rupee and dollar inflows from foreign investors. Data from the latest bulletin of the central bank show that the RBI bought $3.48 billion in the spot market in December. This is over and above the $3.9 billion bought in October and $10 billion in November.
This is also in addition to the concessional swap windows that the RBI launched in September to lure dollars from non-resident Indians and, thereby, shore up the country?s forex reserves. Between September and November, the special windows through which banks could swap dollars for rupee garnered the RBI $34 billion. The RBI has added another net $17.5 billion to the forex reserves through its dollar purchases from the exchange rate market during October-December.
In 2013, concerns had risen that the country?s forex reserves are depleting due to incessant dollar outflows. Many experts had pointed out to the huge short-term debt of the country and imports even as forex reserves reduced. As of July-September, forex reserves were enough to cover for seven months of imports, which is down from a nine-month cover in March 2011. Between October and January, forex reserves have risen by $13 billion.
The official word on the RBI?s market interventions has been that the central bank buys or sells dollars purely to stabilise the currency. RBI governor Raghuram Rajan had also reiterated the same and said that the RBI has no formal plans to buy dollars from the market. During December, the rupee has moved in a narrow 61-62/$ band. Indeed, this dollar buying by the RBI has been aided also by the fact that FIIs were net buyers of Indian assets, bringing in the much needed dollars.
