India's RBI has spent half of $140 billion FX capital haul in rupee defence, bankers estimate
MUMBAI: India has used up about half of the more than $140 billion it mobilised through special measures to bolster its foreign exchange war chest earlier this year, highlighting pressure on the rupee and the central bank’s determination to turn the tide. The Reserve Bank of India’s spot market dollar sales to support the local currency, alongside dollar-rupee sell/buy swaps aimed at absorbing…
India's Reserve Bank of India (RBI) has spent approximately half of the $140 billion foreign exchange (FX) capital it mobilized earlier this year to defend the rupee, according to bankers' estimates. The central bank's interventions, including spot market dollar sales and dollar-rupee sell/buy swaps, have helped absorb excess liquidity in the banking system. High oil prices, rising US Treasury yields, and foreign equity outflows have contributed to the pressure on the rupee.
The RBI has deployed between $75 billion and $80 billion through spot dollar sales and dollar-rupee swaps since June 8, three economists estimate. India's foreign-exchange reserves fell to $734.6 billion by October 2, a decrease of about $51 billion from their peak in early September. This sharp decline in usable reserves has raised concerns about the RBI's ability to support the rupee, potentially fueling more speculation.
In a bid to stabilize the currency, the RBI introduced measures to curb dollar demand in the market. It opened a special window for oil companies to purchase dollars directly from the central bank, diverting demand away from the open market. Additionally, the RBI imposed cash margin requirements on certain forward dollar purchases, making it more costly for importers to hedge their currency exposure. This has discouraged dollar buying, aiming to limit the rupee's weakness.
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