In FY2023, the Reserve Bank of India (RBI) became a net seller of the US dollar after remaining a net purchaser for three consecutive years. It sold $25.52 billion on a net basis in the spot foreign exchange market. The sale of dollars by the RBI was aimed to curb the volatility in the rupee, which came under heavy pressure due to the Russia-Ukraine conflict and interest rate hikes by the US Federal Reserve. Why did the RBI become a net seller of US dollars? The RBI’s decision to sell the greenback was to prop up the rupee, which depreciated by almost Rs 6, or 8 per cent, to 82 levels against the dollar as on March 31, 2023, from 76 as on April 1, 2022. During the previous fiscal, higher import bills due to a surge in oil prices after the Ukraine war had put pressure on the domestic currency. “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 sale of dollars,” Bank of Baroda’s Chief Economist Madan Sabnavis said. The rupee also declined as foreign investors pulled out money from the domestic market after the US Federal Reserve raised interest rates to check inflation. In FY2023, foreign portfolio investors pulled out Rs 37,632 crore from the equity market and Rs 8,937 crore from the debt market, according to NSDL data. According to CR Forex Advisors Managing Director and Founder Amit Pabari, if the RBI had not sold dollars in FY2023, the rupee would have depreciated to 84-85 levels against the US currency. What was the value of dollars sold by the RBI? On a gross basis, the RBI sold $212.57 billion in the spot market and, at the same time, it purchased $187.054 billion. Therefore, on a net basis, the RBI sold $25.516 billion in the spot market. 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. What income did the RBI generate from the sale of dollars? The RBI booked a huge profit in FY2023 by selling dollars as they were bought at lower levels and sold at higher levels. As the RBI made a huge profit, its dividend payout to the Central Government in FY2023 was also higher. Last week, the RBI Central Board approved a 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 the RBI sold at around 80 levels against the dollar. So, they made a huge profit (in FY2023) by selling dollars and therefore paid a higher dividend,” Bank of Baroda’s Sabnavis said. What was the trend in FY2022? The RBI was a net purchaser of dollars in FY22. It bought $17.312 billion on a net basis from the spot market. In fact, the central bank was a net buyer in FY2021 (at $68.315 billion) and in FY2020 (at $45.097 billion). In FY2019, the RBI sold a net of $15.377 billion in the spot market. Did the RBI sell dollars in the forward market? No. In the forward market, the outstanding net forward purchase of the RBI stood at $23.6 billion at the end of March 2023.
