RBI sold $20.1 billion in March to defend rupee

The Reserve Bank of India sold a net $20.1 billion in the spot foreign exchange market in the month of March to support the rupee against the U.S. dollar, its monthly bulletin showed on Tuesday.

The central bank said its net outstanding forward dollar purchases rose to $65.79 billion at the end of March compared to $49.11 billion as of end February. In February, the RBI had sold a net $771 million in the spot market.

The rupee moved in a band of 75.76 to 76.97 in the month of March.

In March, the rupee hit its first record low for the year, breaking below 76.9050 per dollar which was last touched on April 22, 2020 amid the COVID-19 pandemic.

The unit has now been hitting multiple record lows over the last two weeks on the back of broad strength in the dollar and severe risk aversion, touching a life low of 77.7975 earlier in the day.

"Given that the RBI has ample FX reserves, we expect the rupee to remain more stable and weaken less than most other EM (emerging market) currencies against the greenback over the next couple of years," Adam Hoyes, assistant economist at Capital Economics, said in a note.

India's foreign exchange reserves fell to $595.95 billion as of May 6, compared with $597.73 billion a week earlier, latest RBI data last week showed.

Reserves had touched a record high of $642.45 billion in early September 2021.

The central bank in its bulletin also said inflation pressures were increasingly becoming generalised across commodity groups. It said the monetary policy committee's swift response in raising rates showed its resolute commitment to price stability.

The MPC raised the key lending rate by 40 basis points at an unscheduled meeting on May 4 and most economists expect more hikes at its next meetings.

"Heightened global risks stemming from weakening growth, elevated inflation, supply disruptions on account of geopolitical spillovers and financial market volatility stemming from synchronised monetary tightening pose near-term challenges," the central bank wrote.

It said the Indian economy's recovery remains resilient, although risks stemming from global developments have thwarted momentum and the increase in international commodity prices is widening the country's trade and current account deficits.

"In order to achieve a higher growth path on a sustainable basis, private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment," RBI said.