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Banking industry

RBI's Dollar Sales Strategy: A Bid to Strengthen Rupee

Strategic Insights

— 1 min read

The Reserve Bank of India (RBI) sold $25.52 billion on a net basis in the spot foreign exchange market in FY2023 to curb the volatility in the rupee, which had depreciated by nearly 8% to 82 levels against the dollar. The sale was aimed at propping up the rupee, which had come under pressure due to the Russia-Ukraine conflict and interest rate hikes by the US Federal Reserve. Bank of Baroda's Chief Economist Madan Sabnavis attributed the RBI's decision to sell dollars to the widening of the current account deficit due to rising oil prices and the strengthening of the dollar against other currencies.

Key Takeaways:

  • The RBI sold $25.52 billion on a net basis in the spot foreign exchange market in FY2023 to curb the volatility in the rupee.
  • The sale was aimed at propping up the rupee, which had depreciated by nearly 8% to 82 levels against the dollar.
  • The RBI's decision to sell dollars was driven by the widening of the current account deficit due to rising oil prices and the strengthening of the dollar against other currencies.
  • Foreign portfolio investors pulled out Rs 37,632 crore from the equity market and Rs 8,937 crore from the debt market in FY2023, according to NSDL data.
  • CR Forex Advisors Managing Director and Founder Amit Pabari estimated that the rupee would have depreciated to 84-85 levels against the US currency if the RBI had not sold dollars in FY2023.

Statistics:

  • The RBI sold $212.57 billion and purchased $187.054 billion in the spot market in FY2023, resulting in a net sale of $25.516 billion.
  • The RBI's net sale of $25.52 billion in FY2023 was higher than the 2022 figure of $19.05 billion, which was the highest during the previous fiscal.
  • The RBI's dividend payout to the Central Government in FY2023 was Rs 87,416 crore, a 188% jump from the last year's (2021-22) surplus transfer of Rs 30,307 crore.
  • The RBI's net forward purchase of dollars stood at $23.6 billion at the end of March 2023.

Sources:

  • Reserve Bank of India (no source date)
  • Bank of Baroda Chief Economist Madan Sabnavis (no source date)
  • NSDL (no source date)
  • CR Forex Advisors Managing Director and Founder Amit Pabari (no source date)

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