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RBI’s dollar buys in May cover Mar-Apr sales to stem rupee slide

Date: 14-07-2020
Subject: RBI’s dollar buys in May cover Mar-Apr sales to stem rupee slide
Mumbai: The Reserve Bank of India in May almost recovered the dollars it sold in March and April to stem the currency slide following the portfolio investor pull out due to Covid-19 concerns, and is poised to raise the reserves to new record levels to buffer the financial markets against any contagion.

The RBI bought a net $4.4 billion from the spot dollar market in May, after it sold $5.2 billion in March-April, data from the central bank showed. The RBI’s intervention helped the rupee gain 29 paise against the dollar NSE 3.17 % during the month. The RBI also purchased an additional $219 million in May from the forward market, the data showed.

The RBI’s foreign exchange policy is reverting to the Jalan-Reddy practice of building high reserves to guard against contagion,” said Astha Gudwani, an economist at the Bank of America. “Experience suggests that higher forex reserves actually lead to higher FPI inflows by comforting investors.”

India’s foreign exchange reserves rose to a record $513 billion as the central bank accumulated the inflows from portfolio investors as well as foreign direct investments. A lot of investments flowed due to the sale of shares in Bharti Airtel and Kotak Mahindra Bank. Billions of dollars are set to flow in with investments of firms such as Intel, KKR and others in Reliance Industries’ Jio Platforms.

Economic activity and market sentiments have also started improving in May. With the easing of lockdown restrictions from June, businesses have opened and employment has been gaining pace.

The RBI has bought an estimated $5.6 billion in the week ending July 5 and $25 billion since April, a report by Bank of America Merrill Lynch said. “We continue to expect the RBI to persist with its asymmetrical forex policy of buying forex if the dollar weakens and letting the rupee depreciate if it strengthens," said Gudwani.

Bank of America expects the reserves to climb to $550 billion.

Source:- economicstimes.indiatimes.com

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