Reserve Bank turns net seller of US dollars in FY23; sells $25.52 billion in spot market

The RBI sold dollars in huge quantities in FY2023 mainly to curb the fall in the rupee following the Ukraine-Russia war. The domestic currency also depreciated after the US Federal Reserve started hiking rates.

“Last year, the rupee was depreciating primarily on the widening of the current account as oil prices rose due to the Ukraine war and the strengthening of the dollar against other currencies. At that particular time, the RBI went in for the sale of dollars,” Bank of Baroda’s Chief Economist Madan Sabnavis said.

In FY23, the rupee declined by around 8 per cent from close to 76 levels on April 1, 2022, to nearly 82 as on March 31. It briefly depreciated to 83 against the dollar in intraday trades during mid-October 2022.

“Had the RBI not sold dollars (in FY23), the rupee would have weakened to 84-85 levels against the dollar,” said Amit Pabari, Managing Director and Founder, CR Forex Advisors.

In FY23, the country’s foreign exchange reserves declined from $606.475 billion as on April 1, 2022, to $578.449 billion as on March 31, 2023. The depletion of forex reserves was majorly on valuation loss arising from the rise in the US dollar and also on the sale of dollars by the RBI.

In September 2022, RBI Governor Shaktikanta Das said, “About 67 per cent of the decline in reserves during the current financial year (FY2023) is due to valuation changes arising from an appreciating US dollar and higher US bond yields.”

RBI has always maintained that its intervention in the foreign exchange market is aimed at stabilizing the rupee movement. The sale or purchase of dollars by the RBI has a bearing on its profit.

The sale of dollars in FY2023 helped the RBI book profit which is reflected in higher dividend payout to the government in the previous fiscal.
Last week, the Central Board of the RBI approved the transfer of Rs 87,416 crore as surplus – or dividend – to the central government for the accounting year 2022-23. This is a 188 per cent jump from the last year’s (2021-22) surplus transfer of Rs 30,307 crore, which was also the lowest in 10 years.

“These dollars were probably bought (by the RBI) at the time when the rupee was in the 60-70 range and now the RBI sold at around 80 levels. So, they made a huge profit by selling dollars and, therefore, they paid a huge dividend,” Sabnavis added.

In July 2022, the RBI net sold $19.05 billion in the spot market, the highest during the previous fiscal.

In March 2023, the central bank was a net buyer of $750 million, after it purchased $6.91 billion and sold $6.16 billion in the spot market, the data showed.

In the forward market, the outstanding net forward purchase stood at $23.6 billion at the end of March 2023, the RBI data showed.