RBI Net Intervention In Forex Markets
Reserve Bank of India
intervenes in the foreign exchange markets with the explicit view of
controlling what it calls ‘excess volatility’ of the Indian rupee’s exchange
rate. As can be seen from the above table, RBI intervened heavily in the market
between June 2013 and January 2014. During the financial year 2013-14 (data is
available only up to February 2014), it bought $18 billion and sold $16.80
billion, with net purchases amounting to about $1.2 billion.
RBI’s
Intervention: The action in FY 2013-14 is divided into three periods:
Period
|
Sale/Purchase (net)
|
Remarks (in hindsight)
|
USD-INR
|
Jan.2014-Feb.2014
|
Sold $2.4 billion
|
Since Jan.14, INR continued
to gain vs USD though in a limited way.
|
17.04.14: 60.29
31.03.14: 59.95
31.12.13: 61.80
|
Oct.2013-Dec.2013
|
Bought $17.50 billion
|
INR started gaining from an
historic low of 68.80 (on 28.08.13) & ended at 62.58 by 30.9.13. It
further gained to end at 61.80 on 31.12.13.
In order to arrest steep gain
of INR, RBI bought USD. ^
|
31.12.13: 61.80
30.09.13: 62.58
|
Jun.2013-Sep.2013
|
Sold $14.24 billion
|
During the 1st
week of May 2013, INR was hovering around 54. US Fed hinted at Fed tapering
on 22.05.13. From 54 in the middle of May.13, INR fell heavily to 68.80 by
28.08.13.
RBI sold US dollar to prevent
INR falling heavily against USD.
|
30.09.13: 62.58
28.08.13: 68.80
31.07.13: 60.86
30.06.13: 59.39
31.05.13: 56.58
22.05.13: 55.66
30.04.13: 53.69
31.03.13: 54.29
|
^ RBI in September 2013 created two swap windows for FCNR(B) funds and
Banks' Overseas Borrowings. Through them, it collected USD 34 billion till 30
November 2013—part of this foreign exchange was added to India’s foreign
exchange reserves.
Movement of
Forex Reserves in FY 2013-14:
Accretion or depletion of India’s
forex reserves depends on rupee exchange rate, capital inflows to India and
RBI’s net intervention in the markets. India’s latest foreign exchange reserves,
as on 11 April 2014, stood at $309.44 billion (out of which gold accounts for
$21.57 billion).
From a level of $292.65 billion
at end-March 2013, forex reserves came down by $17 billion to $275.50 billion
by the end of August 2013—as rupee fell sharply against the dollar and RBI was
selling dollars to prop up rupee (see above table).
As rupee started appreciating
since the end of August 2013, RBI started adding reserves. Between September
2013 and December 2013, reserves rose by $20 billion to close at $295.71
billion (end-Dec.2013). At the end of March 2014, India’s reserves stood at
$303.67 billion, with further addition of $8 billion.
To Sum Up:
Compared to the period of
May.2013-Dec.2013, Indian rupee’s volatility has come down to a great extent
providing some cheer to the financial markets. The drastic reduction,
engineered by the Indian government, of current account deficit in FY 2013-14 has
also contributed to the rupee appreciation and to the relative stability of the
exchange rate.
India’s national elections are
underway right now and the future movement of exchange rate will much depend on
the structural policies that the next government will bring to the Indian
economy.
My Recent
Tweets:
As RBI buys US dollars to shore up India's forex reserves, it releases rupees into the banking system. Won't this lead to higher inflation?
— RamaKrishnaVadlamudi (@vrk100) April 20, 2014
Net buying of US dollars by RBI b/w Oct.13 and Feb.14 amounts to $15 billion, as per new data. B/w Jun.13 & Sep.13, it sold $14.2 billion.
— RamaKrishnaVadlamudi (@vrk100) April 20, 2014
As INR was falling sharply vs USD b/w Jun.13 & Aug.13, RBI sold USD to prop up INR. Later, RBI was buying USD to prevent INR's sharp gain.
— RamaKrishnaVadlamudi (@vrk100) April 20, 2014
During times of rupee's volatility, RBI intervenes routinely either to prop up INR or prevent INR's sharp appreciation vs major currencies.
— RamaKrishnaVadlamudi (@vrk100) April 20, 2014
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Disclaimer: The author is
an investment analyst with a vested interest in the Indian stock markets. This
is for information purposes only. This should not be construed as investment
advice. Investors should consult their own financial advisers before taking any
investment decisions. The author blogs at:
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