RBI Becomes Net Seller After 3 Years [UPSC Notes]

Recently, the Reserve Bank of India (RBI) witnessed a major change in its currency deals for the 2022-23 financial year. After being a net buyer of the US dollar for three consecutive years, the RBI became a net seller, selling $25.52 billion in the spot market. This is an important topic for the IAS exam economy segment. 

RBI Becomes Net Seller After 3 Years

• The RBI claims that its intervention in the foreign exchange market is aimed at stabilizing the movement of the rupee. 
• RBI’s sale or purchase of dollars affects its profits and is reflected in dividends paid to the government.
• Without the sale of dollars by the RBI, according to experts, the rupee could have weakened further and risen to the level of 84-85 against the dollar.
• The country’s foreign exchange reserves declined from $606.475 billion to $578.449 billion in FY23. This was mainly due to valuation losses due to the strengthening of the US dollar and higher US bond yields.
• The RBI sold a significant amount of dollars in FY23 to curb the depreciation of the rupee due to the conflict between Ukraine and Russia and interest rates by the US Federal Reserve. 
• The rupee depreciated by around 8% in FY23, with RBI intervention preventing further depreciation. The rupee fell from around 76 on April 1, 2022 to nearly 82 on March 31, 2023.

Impacts: 

• RBI’s sale of dollars in FY23 resulted in significant gains resulting in higher dividend payment to the government. 
• The central board of the RBI has approved a 188 percent increase in surplus transfer to the government for the fiscal year 2022-23.

Other Measures to Curb Rupee Depreciation

• Increase capital flows into the country, for example by promoting foreign investment and encouraging non-resident Indian (NRI) deposits. 
• Monitor and intervene in the foreign exchange market to reduce excessive volatility in the value of the rupee. 
• Consider selective use of foreign reserves to avoid excessive depreciation and maintain stability. 
• Promote a favorable business environment and policies supporting economic growth and exports. 
• To effectively control inflation and maintain stability, monetary policy frameworks must be strengthened. 
• Improve coordination with other relevant government agencies to implement comprehensive strategies to manage currency depreciation. 
• Facilitates rupee trading and promotes domestic currency pricing of Indian business transactions. 
• Continuously monitor and assess the impact of policy measures on rupee depreciation and make adjustments as necessary.

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