The Reserve Bank of India’s US dollar purchases in the forward market hit a three year high in March as the central bank accumulated reserves to prevent the rupee’s sharp rise despite which the currency gained to multi-month high.
The Reserve Bank of India bought $ 8 billion in the forward market in March as its outstanding net forward purchases rose to $10.8 billion from $2.8 billion in February, according to data published in central bank’s monthly bulletin released on Tuesday.
This is the highest forward purchase by the central bank since June’14, a move aimed at curbing the rupee’s wild swings.
In addition the central bank bought a net of $3.5 billion from the spot dollar market as gross purchases were $5 billion and gross sales were $1.5 billion.
The central bank has been grappling with huge surge in foreign exchange reserves since January this year that has not only added to the liquidity, but also strengthened the rupee to multi-year highs.
The rupee scaled up by 184 paisa or 2.76% to the dollar as foreign portfolio investors started pouring funds into Indian stocks and bonds.
In addition to liquidity generated by surge in forex inflows, the recent ban on high value Rs 500 and Rs 1000 notes in November’16 has also resulted in additional liquidity of over Rs One Lakh crore in the system according to market estimates. This had added to the challenge of liquidity management to the central bank.
“It is likely that the central bank has got into buy-sell swaps as such measures are liquidity neutral” said S K Ghosh, group chief economic advisor, State Bank of India.