RBI a net seller of foreign exchange in June
16 Aug 2008
Mumbai: The Reserve Bank of India (RBI) drew down its foreign exchange reserves by over $5.5 billion during June this year as it sold heavily to rein in the value of the domestic currency.
RBI sold dollar after the rupee fell from 42.41 per dollar on June 2 to Rs43.03 a $ on 30 June.
The RBI sold $7 billion and purchased $1.77 billion in June, making net sales of $5.23 billion against net purchases of $148 million the previous month and $4.3 billion in April.
This is the first time in over 2-1/2 years that the Reserve Bank of India sold more dollars than it bought in one month. The central bank sold a net $6.54 billion in December 2005.
The spurt in the oil import bill, outflow of foreign institutional investment and the deprecation of the rupee have all combined to force the RBI to infuse dollars into the forex market.
When the RBI starts selling dollars, the dollar becomes cheaper in relation to the rupee and this creates further demand triggering more sales.
Time is of essence and RBI's measures may not always succeed. ''When the RBI is selling dollars and crude prices are going up, then the RBI's action is negated."
Reports meanwhile said the RBI governor Y V Reddy was likely to get an extension.
