RBI spent $44.5B to protect Indian rupee's value in October
The Reserve Bank of India (RBI) invested a whopping $44.5 billion in forward and spot currency markets to strengthen the Indian rupee in October, the central bank's latest monthly bulletin has revealed. The strategic move was made despite heavy foreign portfolio outflows and a spike in the US dollar value. RBI's efforts in October prevented the rupee from significantly weakening against the dollar, despite substantial dollar outflows.
RBI's intervention breakdown: Spot and forward sales
The RBI's intervention in the currency markets was split between spot sales and forward sales. The former accounted for $9.3 billion, while the latter made up one of the highest amounts at $35.2 billion. However, the rupee did breach the 85/$ mark in December. The rupee hit a record low for the sixth straight session on Tuesday, closing at 85.20/$. A surge in US bond yields strengthened the dollar, while strong importer demand added pressure on the currency.
Rupee's resilience in October amid foreign portfolio outflows
In October, foreign portfolio investors withdrew a whopping $10.9 billion. Yet, the rupee only depreciated by 30 paise against the US dollar to close at ₹84.06 for the month. The rupee's relative stability was due to the RBI's heavy dollar sales strategy in response to these outflows. The US dollar strengthened 3.2% (month-on-month) in October, while the MSCI currency index for emerging market economies fell 1.6%.
RBI's continued intervention and FPIs's net outflows
According to money market analysts, the RBI probably kept its strategy of heavy dollar sales into November as well. This speculation comes as foreign portfolio investors (FPIs) remained net sellers in Indian financial markets in November 2024. The rising value of the US dollar and yields worldwide hurt sentiment for risk assets, leading to net FPI outflows of $2.4 billion for the month.
