Reserve Bank May Have Purchased $8 Billion From Market In Less Than A Month: Report

The report said that with an addition of another Rs 32,000 crore in base money since November 4 foreign exchange absorption by the central bank over the past four weeks could exceed $8 billion

The Reserve Bank of India (RBI) may have bought more than $8 billion from the market in less than a month boosting foreign-exchange reserves and improving rupee liquidity by as much as Rs 67,000 crores since the Diwali week, according to an Economic Times (ET) report.

India's foreign exchange (Forex) reserves have risen at their fastest pace in more than 14 months for the October 28 weekend. There are indications that reserves have climbed again in the week to November 11. India's foreign-exchange reserves had declined about $100 billion since February this year. 

The ET report said that with an addition of another Rs 32,000 crore in base money since November 4 foreign exchange absorption by the central bank over the past four weeks reserves could exceed $8 billion. The addition of base money, amounted to Rs 67,000 crore between October 21 and November 11 of this year. Base money reflects more than 90 per cent of the central bank's foreign exchange stockpile.

“In recent weeks, as the US dollar has lost momentum, the RBI is gaining reserves, primarily from revaluation gains and perhaps also some opportunistic buying. This, along with slowing imports, will allay fears of deteriorating import cover ratios,” Rahul Bajoria, MD and Head of EM Asia (ex-China) Economics, Barclays told ET.

The strategy of buying US dollars is also helping RBI ease domestic liquidity. This has led to great comfort in short-term interest rates. Bank of Baroda’s chief economist Madan Sabnavis said, “The RBI has been balancing the twin objectives of both stabilising the forex reserves to provide confidence to the forex market while at the same time ensuring that liquidity remains adequate. Hence, it has bought more than $8 billion in the market and also infused liquidity simultaneously to balance out the two. This is in alignment with the central bank's basic objective of curbing volatility in the markets.”

As global crude and commodity prices are coming down, pressure on the exchange rate is expected to ease further in the coming months. The rupee has lost about 10 per cent against the US dollar since. It has regained some strength in recent weeks.