RBI sells $13 billion in August to hold rupee at 80

RBI sells $13 billion in August to hold the rupee at 80: According to estimates, the Reserve Bank of India sold over $13 billion on the spot market in August to prevent the rupee from depreciating much further against the US dollar. The bank cited the reduction in the nation’s foreign exchange reserves as its justification but this depletion of forex reserves can be restored when India is incorporated into the global bond index. India needs a stable currency rate if it wants to be a top choice for foreign investment. Additionally, as a nation now aims for stronger economic growth, rising oil prices and a declining currency only lead to inflation fears in that nation.

RBI sells $13 billion to prevent the rupee from depreciating

• On August 29, the rupee fell to an all-time low of 80.13 against the US dollar.
• The Reserve Bank of India is estimated to have sold about $13 billion in the spot market to defend the rupee from falling further against the US dollar.
• This is the highest monthly currency market intervention so far in 2022-23 by RBI.
• The reason behind this selling was to contain the rupee’s wild fluctuation which is also draining India’s US dollar stock.
• RBI has intensified its intervention since July end to defend the rupee against the dollar under the psychological level of 80 vis-a-vis the US dollar as it triggers more panic in the market than the actual situation.
• The latest data from RBI shows that foreign exchange reserves fell by roughly $21 billion to $553.1 in five straight weeks between July 29 and September 2.
• The majority of India’s foreign exchange reserves are denominated in US dollars, with the remaining portion coming from investments in non-dollar assets.

Why rupee is falling against the US dollar?

• International developments such as the Russia-Ukraine conflict, rising crude oil prices, and tightening of global financial conditions are the major reasons for the weakening of the Indian rupee against the US dollar.
• Rising Crude oil prices are taking a heavy toll on RBI’s FOREX reserves.
• Tightening of Monetary Policy: RBI’s attempts to tighten the monetary policy to counter rising inflation have also led to depreciation.

RBI sells $13 billion in August to hold rupee at 80 in Hindi

Why depreciation of the rupee should be avoided?

• To avoid the risk of imported inflation- India is heavily dependent on its domestic oil(crude and edible) requirements through imports. Thus depreciation of the rupee will make these items costlier.
• A stable exchange rate is essential for attracting foreign portfolio investors.
• To keep the business profitable and contain the prices of essential commodities.