RBI Sold Dollars Twice to Save Weak Rupee

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Reserve Bank of India
Reserve Bank of India

The Reserve Bank of India (RBI) intervened in the forex market in October, for a second consecutive month, after the rupee came under withering selling pressure on deepening domestic and global growth concerns, its monthly bulletin showed on Monday.

Reserve
Reserve Bank of India

The RBI has always maintained that it does not target any specific exchange rate on the rupee and only intervenes to prevent excessive volatility in the foreign exchange market.

The rupee had fallen to as low as 50.32 per dollar on October 21, and is down nearly 17 percent from its July peak this year. The unit touched a record low of 52.73 on November 22 and losing 7 percent in the month, its worst fall in 16 years.

The local currency is the worst performing unit against the dollar among major Asian peers this year and investors continue to stay bearish on the rupee, a Reuters poll last week showed.

In fact, India may face its worst financial crisis in decades if it fails to stem a slide in the rupee, leaving the central bank with a difficult choice over how to make best use of its limited reserves to maintain the confidence of foreign investors.

RBI sold $943 million in October, but did not buy any dollars, as in the preceding September, where it had sold $845 million dollars and not purchased any, the bulletin showed.

The central bank's dollar sales in September had been its first after November 2010, RBI data showed.

On a net basis, November 2010 was the RBI's biggest monthly intervention since June 2009, when it had bought $1.04 billion.

In 2010, the central bank bought a net $1.85 billion, compared with net sales of $5.8 billion in 2009 when it intervened to prevent the rupee from depreciating sharply.

At 4:29 p.m. on Monday, the partially convertible rupee was at 52.64/65 per dollar, 1.15 percent weaker than its Friday's close of 52.03/04. Earlier in the day, it had dropped to 52.6850 against the dollar, close to its record low before being pulled up by possible dollar sales from some nationalised banks.

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