The RBI bought over $7.7 billion of dollars in March, taking the total amount of dollars it’s bought in 2013-14 to nearly $9 billion. In a year that has seen a lot of dollars going out, the buying has resulted in a large bloating of reserves.
This is the biggest month of purchases from the RBI since January 2008! That’s over six years ago:
Then too, the central bank was battling currency appreciation due to foreign investment inflows. What happened at the end of Jan was a massive crash that soon saw the RBI selling dollars while the currency went to new lows (or, the dollar went to new highs).
A lot of recent dollar buying has been offset by the RBI selling forwards – that is, they have obligations where they have to sell the dollars to banks at a later date. Net of that, we have “lost” dollars this year:
We’ve been steadily losing dollars in the last three years, net of forwards. But looking at the markets this month, we might just be seeing a big reversal of that trend!
Note that inflation is the beast we should be worried about as well. With a $7.7 billion purchase, the RBI has printed around Rs. 45,000 crores that has just been added to our financial system. It’s all out there, looking to inflate prices, just as we thought we had tamed the beast of “mehengai” (inflation).