Mumbai:
The Reserve Bank of India sold net $20.1 billion in the spot currency market in March in support of the rupee against the US dollar, its monthly bulletin showed on Tuesday.
The central bank said its net outstanding dollar forwards rose to $65.79 billion at the end of March, compared to $49.11 billion at the end of February. By February, the RBI had netted $771 million in spot sales.
The rupee moved in a band from 75.76 to 76.97 in the month of March.
In March, the rupee hit its first record low for the year, below 76.9050 per dollar, last reached on April 22, 2020 during the COVID-19 pandemic.
The unit has hit multiple record lows in the past two weeks thanks to broad dollar strength and severe risk aversion, reaching as low as 77.7975 earlier in the day.
“Given that the RBI has ample currency reserves, we expect the rupee to remain more stable in the coming years and weaken less than most other emerging market currencies against the dollar,” Adam Hoyes, assistant economist at Capital Economics, said in a note.
India’s foreign exchange reserves fell to $595.95 billion on May 6, from $597.73 billion a week earlier, the latest RBI data showed last week.
Reserves reached a record high of $642.45 billion in early September 2021.
The central bank also said in its bulletin that inflationary pressures have become increasingly generalized across commodity groups. It said the Monetary Policy Committee’s swift response to raising interest rates demonstrated its determined commitment to price stability.
The MPC raised its key lending rate 40 basis points in an unscheduled meeting on May 4, and most economists expect more hikes in the following meetings.
“Increased global risks from weakening growth, elevated inflation, supply disruptions from geopolitical spillovers and financial market volatility from synchronized monetary tightening pose short-term challenges,” the central bank wrote.
It said the Indian economy’s recovery remains resilient, although risks stemming from global developments have thwarted momentum and the rise in international commodity prices is widening trade and current account deficits.
“To achieve a higher growth path on a sustainable basis, private investment must be encouraged by increased government capital expenditure, which crowds out private investment,” RBI said.
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