RBI sold $20.1 billion in March to defend rupee against the US dollar

The Reserve Bank of India’s monthly bulletin showed on Tuesday that the central bank has sold a net $20.1 billion in the spot foreign exchange market in the month of March to support the rupee against the U.S. dollar.

The central bank said its net outstanding forward dollar purchases rose to $65.79 billion at the end of March compared to $49.11 billion as of end February. In February, the RBI had sold a net $771 million in the spot market.

The rupee moved in a band of 75.76 to 76.97 in the month of March.

The rupee hit its first record low for the year in March, breaking below 76.9050 per dollar which was last touched on April 22, 2020 amid the COVID-19 pandemic. The unit has now been hitting multiple record lows over the last two weeks on the back of broad strength in the dollar and severe risk aversion, touching a life low of 77.7975 earlier in the day.

Latest RBI data showed that India's foreign exchange reserves fell to $595.95 billion as of May 6, compared with $597.73 billion a week earlier.

Reserves had gone up to a record high of $642.45 billion in early September 2021.

"Heightened global risks stemming from weakening growth, elevated inflation, supply disruptions on account of geopolitical spillovers and financial market volatility stemming from synchronised monetary tightening pose near-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 increase in international commodity prices is widening the country's trade and current account deficits.

"In order to achieve a higher growth path on a sustainable basis, private investment needs to be encouraged through higher capital expenditure by the government which crowds in private investment," RBI said.