BY S VENKAT NARAYAN
Our Special Correspondent
NEW DELHI, 17: The Reserve Bank of India (RBI) is estimated to have sold about $13 billion in the spot market in August to defend the rupee from falling further against the US dollar, The Economic Times has reported quoting top dealers who cited the depletion in the country’s forex reserves.This is the highest monthly currency market intervention so far in 2022-23 as the central bank is said to be defending the psychological mark of 80. Foreign exchange reserves plunged by nearly $21 billion to $553.1 billion in five consecutive weeks between July 29 and September 2, latest data from RBI show. A stable exchange rate is quintessential for foreign portfolio investors who are flocking back to India, experts said.
“If India wants to be a destination of choice for overseas investors, we need to have a stable exchange rate. Also, higher oil prices and a falling rupee will only stoke inflation fear in a country, which is now aiming for higher economic growth,” said Bhaskar Panda, Executive Vice President at the National Stock Exchange (NSE). “Such a combination of factors including global volatility may have prompted the central bank to stabilise US$-INR in the currency market,” he added.
The RBI did not comment on the matter. On record, the central bank always denies protecting at any level but acts to dampen high volatility.Panda said the forex reserves depletion “can well be replenished once India is included in the global bond index.”
“The RBI is clearly protecting the 80 level as we could see aggressive dollar selling over the past one month,” a chief currency dealer at a large bank said on condition of anonymity. The rupee plunged to a lifetime low of 80.13 against the US dollar on August 29.
A majority of India’s foreign exchange reserves is held in US dollar-denominated currency while the rest comes from investment in non-dollar assets. Out of $21 billion forex reserves’ depletion between July 29 and September 2, a chunk of $7 billion can be attributed to the devaluation of non-dollar assets, internal estimates show.
During the period, the dollar index, which measures the US unit against other major currencies, gained 3.6%. The remaining over $13 billion the central bank had likely sold in the spot market, cutting the rupee’s wild move while draining India’s US dollar stock, dealers said. “RBI’s intervention intensified since July end as we observed,” said Amit Pabari, founder and managing director of CR Forex, a Mumbai-based foreign exchange firm.
“The central bank is clearly defending the psychological level at 80 as it triggers more panic than actual reality.” He said the forex reserves depletion “can well be replenished once India is included in the global bond index”.
While a part of the rupee outperformance is attributed to speculation of Indian government bonds in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) index, it now turns out that the interventions also helped, banking insiders said.
In a related development, Chief Economic Advisor V Anantha Nageswaran said on Tuesday that India is not defending the rupee. The RBI is taking steps to ensure that the movement of the rupee is gradual and in line with market trends, he added.
“India is not defending the rupee… I don’t think Indian fundamentals are such that we need to defend the rupee. The rupee can take care of itself,” he said at an event in New Delhi.
“The RBI is making sure that whatever direction the rupee is moving in line with the market trends is just gradual and doesn’t impose burdens either on the importers or the exporters,” Nageswaran added.
On declining foreign exchange reserves, he said, “Global risk aversion prevents capital from coming in. Naturally that is what (foreign) reserves are meant for.”
The fall in the reserves during the reporting week ended August 26 was on account of a dip in the foreign currency assets (FCA), a major component of the overall reserves, and the gold reserves, according to the Weekly Statistical Supplement released by the RBI on September 2.
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