RBI Intervenes, Buys $1.7 Billion to Curb Rupee’s Surge

Quick Summary

• The Reserve Bank of India (RBI) net purchased $1.7 billion in the foreign exchange spot market in May 2023 to limit excessive appreciation of the rupee.
• The RBI’s total purchases amounted to $9.1 billion, while its sales totaled $7.3 billion during the month.
• In mid-May, the rupee reached a six-month high but later declined due to tariff uncertainties and geopolitical tensions between India and Pakistan, closing at 85.57 per dollar by the month’s end-a 1% drop.
• Real Effective Exchange Rate (REER), an indicator of currency valuation against a basket of foreign currencies, stood at 101 in May and slightly declined to 100 in June.

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Indian Opinion Analysis

The RBI’s intervention reflects a proactive effort to maintain exchange rate stability amid volatility caused by external factors such as tariff uncertainties and rising geopolitical tensions. By purchasing significant amounts from the forex market, it likely aimed to prevent undue rupee appreciation that could impact India’s export competitiveness or create macroeconomic imbalances.

The REER figures reveal stability with minimal fluctuations, suggesting that these measures contributed effectively toward maintaining India’s trade equilibrium while addressing immediate risks tied to currency valuation changes.

The decision underscores india’s nuanced approach toward managing monetary policy during times of economic unpredictability without signaling aggressive action that could deter international investor confidence or spur speculation about long-term policy shifts.