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The Reserve Bank of India (RBI) net sold $19.05 billion in the foreign exchange market in July as it sought to defend the rupee from excessive volatility.
The central bank’s net sales of the US dollar in July were the highest since March 2022, when the sales were at $20.10 billion.
In July, the RBI sold $38.7 billion in the foreign exchange market and bought $19.72 billion, the data in the central bank’s September 2022 Bulletin showed.
In July, the rupee depreciated 0.4 per cent versus the US dollar. The domestic currency had shed 1.7 per cent versus the greenback in June.
So far in 2022, the rupee has depreciated 6.8 per cent versus the dollar.
The RBI has significantly stepped up its sales of the US dollar since June in order to rein in the rupee’s depreciation in the face of a rapidly strengthening greenback.
The RBI data show that the central bank net sold $3.7 billion in the foreign exchange market in June. In April and May, the RBI had net bought US dollar, with purchases of $2 billion each in those months.
The September 2022 Bulletin also showed a sharp reduction in the RBI’s outstanding net forward purchases of the US dollar in July, suggesting that the central bank had taken delivery of maturing forward positions.
The RBI’s outstanding net forward purchases declined by $8.9 billion to $22 billion in July. The net forwards position was at $65.79 billion at the end of the last fiscal year.
The decline in the forwards book indicates that the central bank intervened in both the forwards and the spot market in order to protect the rupee from excessive depreciation in the face of a widening trade deficit and overseas investment outflows.
The latest data released by RBI on Friday showed that the total reserves were at $550.8 billion as on September 9.
This is sharply lower than $631.53 billion as on February 25, around the time that Russia invaded Ukraine.
Foreign exchange reserves at $553.1 billion on September 2, 2022 were equivalent to 9 months of imports projected for 2022-23.
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