RBI Sells $50 Billion to Prop Up Rupee Amid 2% Yearly Decline

The Reserve Bank of India has reportedly sold at least 50 billion dollars in the offshore and onshore foreign exchange markets this month to support the rupee as it approaches historic lows. This intervention comes as the rupee's value against the dollar has been declining, reaching 87.89 last week, just shy of its all-time low. The depreciation of the rupee has been exacerbated by recent geopolitical tensions, including the doubling of tariffs on Indian goods by the United States as a retaliatory measure for India's purchase of Russian oil.

The rupee has depreciated by more than 2% this year, making it one of the worst-performing currencies in Asia. The central bank's intervention has been observed multiple times this week, with actions taken in the offshore market just before the onshore currency trading begins at 9 AM local time in Mumbai. This intervention is part of a broader effort to stabilize the rupee, which has been under pressure due to global economic uncertainties and domestic inflationary pressures.

The Reserve Bank of India's latest foreign exchange reserves data indicates an increase in intervention efforts. The reserves decreased by 93 billion dollars to 689 billion dollars in the week ending August 1, marking the largest decline since November. This reduction is partly due to global currency valuation changes and not solely attributable to the central bank's buying and selling of dollars.

The central bank's actions are aimed at mitigating the impact of a weaker rupee on the economy, which could exacerbate import-driven inflation and strain the fragile economic recovery. The rupee's depreciation could lead to higher import costs, particularly for essential commodities like oil, which could further fuel inflation. The central bank's intervention is crucial in maintaining stability in the foreign exchange market and supporting the rupee's value against the dollar.