New Delhi: In order to prevent the rupee from excessively depreciating in the face of a growing trade deficit, the Reserve Bank of India intervened in both the forwards and spot markets in June, resulting in a significant $18.33 billion drop in the Reserve Bank of India’s outstanding net forward purchases of US dollars.

The central bank’s net forward purchases at the end of June were $30.86 billion, down from $49.19 billion at the end of May, according to data in the RBI’s August 2022 Bulletin.

The outstanding long net forwards position was $65.79 billion at the end of the previous fiscal year, according to RBI data.

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The central bank took delivery of its maturing forward positions, which caused the outstanding net forward buy position to decrease.

The RBI has dramatically broadened the scope of its operations in the foreign currency market over the past several months to now cover both the forwards and futures markets. These are in addition to its significant spot market dollar sales interventions.

“My sense is that they (the RBI) have used some of the forwards which had matured and they didn’t roll it over because they were defending the rupee by using forwards as well as by using spot market interventions,” Soumyajit Niyogi, director, India Ratings & Research told Business Standard.

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We had a high capital account deficit as well as a current account deficit but if you see the movement in forex reserves- it’s not been so high. So, the difference is because they have used the forwards and that’s the reason why the foreign exchange reserves haven’t depleted too much even in the face of a high Balance of Payments (BoP) deficit.

The RBI net sold $3.7 billion in the spot market during the month of June, according to the August bulletin.

As India posted an all-time high trade deficit of $26.1 billion in June, the rupee lost 1.3% of its value against the US dollar, falling for the first time ever past the 78-per-dollar threshold. The rupee has lost 6.8% of its value against the USD thus far in 2022.

The entire headline foreign exchange reserves held by the RBI as of August 12 were $570.74 billion, significantly less than the $631.53 billion held on February 25 — just before Russia invaded Ukraine.

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According to the central bank, the RBI’s headline reserves as of August 5 were $573 billion, or 9.4 months’ worth of estimated imports for the years 2022–2033.

The RBI’s reserves as of March 4, just about a week after the start of the Ukraine crisis, were $631.9 billion, or 12.4 months’ worth of anticipated imports for the previous fiscal year.

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