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Journalism of Courage
The Reserve Bank of India’s (RBI) outstanding net forward sales of the dollar have surged to $67.93 billion as of December 31, 2024, as the central bank intensified its efforts to stabilise the rupee. This marks a significant increase in outstanding forward dollar sales of $14.58 billion just three months ago in September 2024, and a substantial rise from $541 million during the year ended March 2024.
The high forward dollar sales position indicates that the RBI has been actively selling dollars in the forward market to defend the rupee amid concerns over US trade policies, sluggish domestic growth, and FPI outflows. In the spot market, the RBI’s dollar sales stood at $45 billion in the third quarter—$15.15 billion in December 2024, $20.22 billion in November and $9.27 billion in October—while it bought dollar worth $9.63 billion in September 2024, according to RBI data.
The RBI also conducted a dollar-rupee buy/sell swap for $5 billion on December 31, with the transaction set to be reversed on August 4. This move aims to manage the impact of the RBI’s spot market interventions on rupee liquidity.
However, while higher dollar sales in the forward market may not impact the forex kitty immediately, it can lead to a decrease in forex reserves subsequently since the RBI is expected to repurchase the dollars in the forward market on the prescribed dates. By selling more dollars in the forward market, the RBI is effectively reducing the demand for dollars in the spot market, which helps to stabilise the rupee.
The rupee depreciated by 1.5 per cent month-on-month (m-o-m) in January 2025, in line with movements in most major currencies, amid growing global uncertainties. It had fallen to a low of 87.95 earlier this month.
A rising US dollar and FPI outflows from emerging market economies (EMEs) amid growing global uncertainties exerted significant pressure on emerging market currencies during January 2025.
In an environment of heightened global market turbulence, the rupee exhibited relatively low volatility. In terms of the 40-currency real effective exchange rate (REER), the INR depreciated by 2.2 per cent (m-o-m) in January 2025, due to depreciation of the INR in nominal effective terms and negative relative price differentials, the RBI said in its ‘State of the economy’ report released on Wednesday.
As of February 7, 2025, India’s foreign exchange reserves stood at $638.3 billion, providing a cover for 10.8 months of imports and 89.7 per cent of external debt outstanding at end-September 2024. The RBI noted that strong macroeconomic fundamentals and improvements in various measures of external sector vulnerability have helped India navigate the ongoing wave of global uncertainty.
