The Reserve Bank of India sold a net of $20.1 billion to defend the Indian rupee in March, showed data from the central bank’s latest bulletin. According to comparative data available on Bloomberg, this is the highest net sale of foreign exchange since 2012, when the data became available.
In March, the RBI also conducted a sell/buy swap auction worth $5 billion to elongate the maturity of its forwards book. While the RBI did not specify, this sale would likely have also reflected in the foreign currency sales data for the month.
Even if the swap auction amount is excluded, the foreign currency sales by the RBI in March are the highest since the data became available.
The sales came as the rupee weakened amid foreign fund outflows.
The rupee weakened from 75.80 against the U.S. dollar on March 1 to 77.08 on March 7. It stabilised thereafter, closing the month at 75.91 to the dollar. Since then the currency has weakened further, continuing to hit record highs. On Tuesday, it closed at an all-time low of 77.56 against the dollar.
The central bank typically sells foreign currency to smoothen the rupee’s fall, particularly during times of outflows. Equity investors have withdrawn Rs 1.56 lakh crore (~$20 billion) since the start of the calendar year, while debt investors have net sold Rs 14,402 crore (~$1.87 billion).
The sales, alongside valuation changes of foreign currency holdings, have led to a drop in India’s foreign exchange reserves from a peak of $641 billion in October 2021 to $595 billion now.