In August, when the rupee was continuously falling against the US dollar, the Reserve Bank of India (RBI) sold USD 7.7 billion in a move to check the volatility in the foreign exchange market and put an end to the rupee fall. As the central bank recent bulletin indicates, the net sale of dollars by the RBI was USD 7.69 billion in August, which was almost three times more than in July, a measure of the on-going efforts by the central bank to stabilise the currency.
The statistics also showed that the RBI did not buy US dollars in July or August indicating that it was only working on the depreciation of the rupee. Although the RBI does not aim at achieving a particular level or band of rupee to dollar exchange rate, it regularly intervenes to counter an unwarranted volatility in the market owing to market speculation, external shocks, or unexpected capital flows.
The rupee was also under pressure in August with a stronger greenback and continued foreign portfolio investment (FPI) outflows dragging the currency by nearly 1.6% against the US dollar. In September, the trend of depreciation persisted in the backdrop of a global economic uncertainty, sensitive geopolitical tensions and high US bond yields; thus, all of which supported the dollar strength.
Analysts reckon that the dollar sales of the RBI was intended to smooth out the sharp movements on the exchange rate as opposed to protecting a specific range. The intervention also contributed to averting the further fall of the rupee that had been under renewed pressure caused by the high cost of crude oil and the stable outflows of capital of the emerging economies.
Such forex dealings were also observed by the experts as an active way of India to remain in the macroeconomic balance in the face of global headwinds. The foreign exchange reserves of India are strong despite the weakness of the rupee providing a good cushion against external shocks. RBI is projected to carry on with its measured interventions to make sure that the exchange rate is in orderly flow without interfering with the market sentiment or liquidity.