RBI sold $107 mn in spot market in May1 min read . Updated: 11 Jul 2013, 12:10 AM IST
RBI also sold $5.80 bn in the forwards market in May to temper future expectations on the rupee
Mumbai: The Reserve Bank of India (RBI) sold $107 million in the spot market in order to cushion the rupee’s fall in May as the Indian currency started its free fall in that month, data from the central bank showed.
Besides the dollar sales in the spot market RBI also sold $5.80 billion in the forwards market in May to temper future expectations on the rupee as the Indian currency started to weaken in that month.
Data released by RBI in its July bulletin on Wednesday showed that the forward dollar sales were lower than the $8.23 billion the central bank sold in April. However, the dollar sales in the spot market was in contrast to the $518 million the central bank bought in April.
In May, the rupee had lost 4.21% against the dollar to weaken past the ₹ 56 per dollar mark, making it Asia’s worst performer and the second worst among all emerging market currencies.
It had started the month at ₹ 53.810 to the dollar and fell along with all emerging currencies, which struggled against the dollar’s global strength.
Ashish Vaidya, head fixed income, currency and commodity trading, for India at UBS AG said RBI chooses to intervene through the forward market because such intervention does not immediately reflect in the country’s foreign exchange reserves.
“They are just creating a short term dollar liability which may or may not be settled on the forward’s date because if the liability is too much the RBI can choose to roll over either the whole trade or even a part of it," Vaidya said adding that intervention in the forward market gives the central bank the flexibility to temper the rupee’s fall without dipping into the country’s forex reserves for the time being.
The Indian currency has been in a free fall since May mainly because of the dollar’s strength overseas after the US Federal Reserve hinted that its $85 billion per month bond buying programme could end soon.
On Monday, the Indian currency tumbled past the ₹ 61 per dollar level to a record low of ₹ 61.21 per dollar, losing 9.27% so far this year. However, it has since recovered somewhat to close at ₹ 59.66 per dollar because of regulatory measures by RBI to cut speculation in the forex market and dollar sales by state-owned banks.