
The Reserve Bank of India (RBI) is said to have sold about $10 billion in the past two weeks to prevent a sharp upward revision in inflation forecasts, three people familiar with the multi-pronged interventions told ET, as it sought to cushion the domestic impact of imported transport fuels for which a 10% increase in base price assumptions now seems a near certainty.
"Imported inflation is important in the current context as imports amounted to nearly 20% of our GDP in FY22," said Madan Sabnavis, chief economist at Bank of Baroda NSE -2.51 %. "The share of imports is likely to rise this year, necessitating the RBI to arrest the rupee’s sudden depreciation. This is a major threat to the economy as it can upset all macro projections."
Stubbornly high crude oil prices may require Mint Road to revisit its calculations on automotive fuels, and medium-term price assumptions are likely to be raised to $115 a barrel, from $105 currently.
Rupee Fares Better than Asian Peers
The RBI hasn’t necessarily sought to aggressively defend any peg for the rupee against the dollar, but its unstated aim amid the global dash for safe-haven assets has been to prevent the rupee's rout, thus avoiding a further spike in local prices.
The central bank did not reply to ET's query.
To that effect, the government’s money manager has intervened in the spot, futures, forwards and overseas derivative markets, ensuring that the rupee fares better than competing Asian currencies. In June, the rupee was the second-best performing unit in the continent, losing about half a percentage point to the greenback, compared with a 0.66% loss for the Chinese unit, Bloomberg data compiled by ETIG showed.
India’s foreign exchange reserves have remained largely undiminished in the vicinity of $600 billion, with forward contracts helping secure inflows of dollars that exited the spot market.
The rupee was little changed Thursday at 78.08, posting its lowest closing.
To be sure, India’s trade deficit, or excess of overseas receivables over payables, swelled to a record $24.3 billion in May.
"The RBI is clearly targeting to tame imported inflation after it raised the policy rates sharply," said a currency trader actively selling dollars on behalf of Mint Road.
The RBI raised the repo rate by 90 basis points in two tranches since May 4 while seeking to manage systemic liquidity to restrain inflation. One basis point is 0.01%.
"The central bank is selling dollars almost every day as the focus is on imported inflation," said another trader.
Read More at https://economictimes.indiatimes.com/news/economy/indicators/rbi-sells-10-billion-in-two-weeks-to-keep-its-inflation-forecast-bearable/articleshow/92266664.cms
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