According to a research report of the SBI Research, the Reserve Bank of India (RBI) is reported to have spent almost $30 billion in the last four months trying to stabilise the Indian rupee. The greatest intervention by the central bank was recorded between June and September where the central bank is estimated to have sold approximately 18 billion in the foreign exchange market in an attempt to tame the excessive volatility of the currency.
The report also added that the RBI is estimated to have attempted further intervention of another $10 billion in October which has brought the overall value of the forex market operations near to around 30 billion. These steps were to help the rupee through the uncertainties in the world and the strong US dollar and the continuing outflows of capitals.
Due to these interventions, the foreign exchange reserves in India dropped significantly. The reserves have been pegged to cost of defending the domestic currency as of December 5 stood at 687 billion compared to 703 billion in June. In spite of the stern measures that the central bank has undertaken, the rupee has not been spared, as the rupee has been experiencing a downward pressure, with the rate at which the currency depreciates increasing over the past months.
Even though the falling rupee has been an issue to the importers and inflation monitors, it has been a relief to the Indian exporters especially those affected by US tariff measures that have been implemented earlier in the year. The November trade statistics indicated a year-on-year growth of export in the total exports by 19% and exports to the United States by 11% which is a sign of increasing competitiveness of the Indian goods.
Director General of the Federation of Indian Exporters Organisations (FIEO) Ajay Sahai stated that the weaker rupee has favored the weakly dependent sectors that are mainly labour intensive. These are clothing, cloth, carpets, toys, sports equipment and farm products. Nevertheless, he indicated that the benefit has mostly translated in terms of increased profit margins as opposed to a significant increase in the level of exports.
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