RBI Sold US$ 20.63 Billion in October
India’s central bank, the Reserve Bank of India (RBI) sold US$ 20.63 billion or Rs 99,024 crore in foreign currency during the month of October to try and prevent the steep depreciation of the Rupee. The amount was a record sale of foreign exchange by the Indian central bank.
According to the latest information released by the RBI cumulative sales of foreign currency between April and October 2008 were $28.32 billion or Rs 135,936 crore. In rupee terms, on a net basis, the RBI sold foreign currency worth nearly Rs 93,000 crore during October sucking liquidity from the system.
This policy has had the effect of tightening Rupee liquidity considerably at the start of October as the credit crisis began to intensify in America with Lehman Brothers filing for bankruptcy and AIG having to be bailed out by the US Federal Government.
The payment of the second instalment of advance tax and heavy borrowings by oil marketing firms also had the effect of draining even more cash from the system. The central bank’s net sales of foreign currency worth $3.78 billion or Rs 18,396 crore in September only intensified the liquidity crunch market participants said.
Heavy selling by Foreign Institutional Investors, coupled with global investor panic which resulted in a steep appreciation of the US dollar against almost all currencies meant that the RBI had to repeatedly intervene in the foreign exchange market to support a depreciating rupee. This has also meant that foreign exchange reserves have been depleted by nearly $64 billion or Rs 307,200 crore since April.
Despite the RBI’s intervention, in October, the Rupee still fell around 5 per cent against the dollar. Since April, the rupee has fallen 21.61 per cent against the greenback to close at 48.58 and year to date in 2008 the Rupee has declined 23 per cent. The only other Asian currencies to have fared worse have been the Pakistani Rupee and the South Korean Won, with the latter losing a whopping 40 per cent of its value against the US dollar.
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