Net sales of dollar reserves by the central bank in May have been the highest in almost five years, the Reserve Bank of India’s (RBI) montly bulletin for July indicated. The last time the central bank sold dollars close to this amount was in July 2013. During May, the net sell-off of dollars by the RBI amounted to $5.7 billion. It sold dollars worth $9.8 billion and purchased worth $4.1 billion. On May 31, the rupee was trading at 67.4100 against the dollar. Earlier on May 16, the Indian currency was ruling at 67.7962 against the greenback.
Dealers attributed the dollar sales in May to the weakening rupee. The RBI, they said, may have stepped in to stem a fall in the value of the Indian currency. The rupee had hit its lowest on July 5 closing at 68.9413. The currency has been depreciating on the back of concerns over widening current account deficit (CAD), thanks to rising crude oil prices and a stronger dollar value. The rupee has fallen in sink with a host of other emerging market currencies and has been among the worst performing currencies in Asia. Moreover, dealers said there was dollar demand from importers.
Since January, the rupee has given a negative return of 7.125% , the Chinese yuan has given a negative return of 2.511%, while Turkish lira has given up 20.3% . The Malaysian ringgit, however, has given a positive return of .235%. The dollar index — Dollex — has moved up from 90.052 in April this year to 94.453 levels on Wednesday. Brent crude price was hovering around 77.8 per barrel on Wednesday. Rupee closed at 68.7725 against the greenback on Wednesday.
Ananth Narayan, professor of finance at SPJIMR, said that a robust intervention and monetary defence of rupee is already underway. “Across spot and forwards, data released today shows that RBI has sold $18 billion in currency markets in April and May. Since then, the total intervention amount this fiscal year has likely crossed $25 billion. In addition, bond and money market interest rates are up, as are USDINR FX forward premia,” Narayan said.
India’s foreign exchange reserves further fell by $1.75 billion to $406.058 billion as on June 29, data from the Reserve Bank of India (RBI) showed. Foreign currency assets (FCA), which form a key component of reserves, fell by $1.78 billion from the previous week to $380.718 billion. FCAs are maintained in major currencies like US dollar, euro, pound sterling and Japanese yen.