In January, the Reserve Bank of India RBI net sold $384 million in the domestic foreign exchange market, snapping two months of dollar purchases by the central bank.
The central bank s latest Bulletin shows that the company bought $12.9 billion and sold $13.29 billion in the currency market in January.
In January, the RBI's outstanding forward book, however, rose to $21.73 billion from $10.97 billion a month ago. The rupee appreciated sharply against the dollar in January because of an increase in the outstanding forwards book, which results in dollar purchases in the forwards segment. However, the local currency experienced a lot of volatility ahead of the Union Budget on February 1 and the US Federal ReserveFederal Reserve policy statement later the same day at the end of January. The exchange market is affected by dollar sales or purchases in order to contain excessive volatility in the exchange rate.
India had the fifth largest foreign exchange reserves in the world as of February 2023. India's foreign exchange reserves fell by $11.7 billion in February 2023 and were at $560.0 billion as of March 10, covering more than nine months of imports projected for 2022 -- 23, the RBI staff wrote in the March 2023 Bulletin.
The reserves of the RBI have decreased by $100 billion from February to September of 2022, partly due to dollar sales as the central bank tries to shield the rupee from excess volatility because of the Ukraine war and the Fed tightening cycle.
The central bank sold dollars every month from June to October. Net sales were $3.7 billion in June, followed by $19.05 billion in July. In August, the RBI net sold $4.3 billion, followed by $10.36 billion in September and $922 million in October. In November and December of 2022, the central bank net bought $4.36 billion and $3.8 billion.
In April and May of 2022, the RBI had net bought $1.9 billion and $2 billion in the foreign exchange market.