RBI Snaps Up $49.2 Billion in April-February, Most in 7 Years - NDTV

Mumbai: Aiming to reduce rupee volatility on account of higher inflows and increase foreign exchange (forex) reserves to cushion any external shock, the Reserve Bank of India (RBI) bought the highest amount of dollars after a gap of seven years at $49.2 billion in April-February of the past fiscal year.

The RBI net purchased the currency from the spot market in April 2014-February 2015, according to the central bank data, which comes with a lag of two months.

The central bank had bought $115.9 billion from the market during the period while it sold $66.7 billion, RBI data showed.

The period also saw the forex reserves touching a record $338 billion to the week ended February 27.

"With the country's macro fundamentals improving, we have seen robust capital flows," Yes Bank chief economist Shubhada Rao told PTI.

"Simultaneously, we have also seen RBI intervening in the market to cushion volatility, but more implicitly allowing the nominal exchange rate to adjust closer to its fair value, which at present is 64-65 to the dollar after adjusting for inflation and productivity differentials. This has resulted in an improvement in forex reserves," Ms Rao said.

"When inflows are more, the supply of dollar increases and it results in rupee appreciation, which is not good for exports. The RBI buys these excess dollar supply and add to their reserves. This is a way to maintain orderly movement of the rupee," said a senior dealer with a public sector bank.

The rupee had depreciated by around 4 per cent in the financial year gone by, against a whopping around 20 per cent appreciation in the previous fiscal year, making it the best performing emerging market currency.

Experts say that with higher purchases of dollars, the Reserve Bank of India is also trying to create buffer against any volatility.

"There is an expectation that the interest rates in the US is likely to go up. The RBI is buying dollars to equip itself with enough reserves to avoid volatility," said a senior bank official with a state-owned bank.

The RBI has always maintained that its intervention in the currency market is to curb volatility and not to achieve any particular level.

"Our intervention in exchange market has historically been to reduce exchange rate volatility and that's not just the volatility today but also anticipated volatility," RBI Governor Raghuram Rajan had said at the policy review on April 7.

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