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RBI becomes net seller in June by selling 3.719 billion US dollar

RBI said that it has been able to achieve its intervention objectives with progressively lesser percentage drawdown in foreign exchange reserves.Premium
RBI said that it has been able to achieve its intervention objectives with progressively lesser percentage drawdown in foreign exchange reserves.

  • The central bank purchased 18.96 billion USD in the spot market while sold 22.679 billion USD in June.
  • In the forward dollar market, RBI's outstanding net purchase in June this year stood at 30.856 billion USD compared to 49.191 billion USD in the previous month.

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The Reserve Bank of India (RBI) emerged as the net seller of the US dollar in July after selling 3.719 billion USD on a net basis. The central bank purchased 18.96 billion USD in the spot market while sold 22.679 billion USD in the month under review. In its August bulletin, RBI said that it has been able to achieve its intervention objectives with progressively lesser percentage drawdown in foreign exchange reserves.

Last year, in June, RBI was the net buyer of the American currency. The central bank purchased 18.633 billion USD on a net basis in the spot market in the month.

While in May this year, the central bank was a buyer of the greenback with a net purchase of 2.001 billion USD. During the month, RBI bought 10.143 billion USD and sold 8.142 billion USD.

Also, in the financial year FY22, RBI recorded a net purchase of 17.312 billion USD after buying 113.991 billion USD and selling 96.679 billion USD in the spot market.

Meanwhile, in the forward dollar market, RBI's outstanding net purchase in June this year stood at 30.856 billion USD compared to 49.191 billion USD in the previous month.

In the bulletin, the central bank said, RBI has been able to achieve its intervention objectives over successive high volatility episodes of global spillovers induced by exchange market pressure.

In its study titled 'Exchange Rate Volatility in Emerging Market Economies' RBI said that the drawdown in forex reserves was around $70 billion during the GFC which came down to $17 billion during the Covid-19 outbreak. In the current Russia-Ukraine crisis and Fed tightening episode, while the drawdown in reserves stands at $56 billion (as of July 29, 2022), the net drawdown is much less when the depletion in reserves due to sell legs of swap auctions ($20 billion) and valuation losses is considered.

Further, RBI explained that the size of the dip in forex reserves as a percent to total forex reserves has come down from around 22% during the GFC to 6% during the Russia-Ukraine conflict and Fed tightening episode.

"This implies that due to a general reduction in volatility expectations of the INR over the study period and also because of accumulation and timely usage of foreign exchange reserves, the Reserve Bank has been able to achieve its intervention objectives with progressively lesser percentage drawdown in reserves," it said.

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