RBI Shifts Stance to Net Buyer of US Dollars in June Amid Robust Inflows
MUMBAI: In a notable pivot in its currency market operations, the Reserve Bank of India (RBI) emerged as a net purchaser of US dollars in June. After months of active intervention on the sell side to stabilize the rupee, the central bank’s latest bulletin reveals that it purchased a net $561 million in the spot and over-the-counter (OTC) markets during the month.
This shift marks a significant departure from the trend observed in May, when the central bank recorded net sales of $6.1 billion. The June purchase, which amounted to approximately Rs 5,505 crore, highlights the central bank’s efforts to absorb excess liquidity in the foreign exchange market as dollar inflows remained strong.
Strategic Policy Measures Boost Liquidity
The uptick in dollar availability is largely attributed to a strategic policy move initiated by the regulator. In June, the RBI introduced a specialized scheme enabling commercial banks to offer more attractive yields on Non-Resident Indian (NRI) deposits. By assuming the underlying currency risk through a swap mechanism, the RBI effectively encouraged higher dollar inflows, providing the central bank with the necessary cushion to rebuild its foreign exchange reserves.
Market data underscores the scale of this activity: in the OTC segment alone, gross dollar purchases climbed to $30.9 billion, comfortably outpacing the $30.3 billion in sales.
Managing Outward Remittances
The central bank’s intervention comes at a time when resident Indians are increasingly utilizing the Liberalised Remittance Scheme (LRS). Despite the RBI’s net purchasing stance, demand for foreign exchange for outward remittances remained elevated. According to the data, outward remittances climbed 6.5% month-on-month to reach $2.5 billion in June—a figure nearly 20% higher than the same period last year.
Impact on Reserve Totals and Forward Positions
The tactical shift in June has had a tempering effect on the RBI’s broader fiscal year metrics. Cumulative net sales for the fiscal year have narrowed to -$14.5 billion, while the central bank’s outstanding forward short position has been reduced to -$103.3 billion. Meanwhile, the currency futures market remained largely neutral, with purchases and sales balanced at $2.9 billion each, resulting in zero net outstanding futures.
As global economic headwinds persist, the RBI continues to maintain a vigilant watch over the rupee, balancing the need to manage volatility with the imperative of maintaining robust foreign currency reserves.
