Reserve Bank of India (RBI) was the net seller of over $36 billion between June and December to support the Indian Rupee, showed government’s written responses in the Rajya Sabha on Tuesday.

Written replies by Minister of State in the Finance Ministry, Pankaj Chaudhary revealed that gross sale during 7 months of the current fiscal, starting June, by RBI was over $53 billion, while gross purchase was over $16.5 billion. This means that net sale was over $36 billion. However, this was not sufficient to stop the steep fall in rupee.

According to Chaudhary, since the commencement of the last quarter of calendar year 2024, Indian Rupee along with other Asian currencies depreciated against the US Dollar amid uncertainties surrounding the results of the US elections.

“US Dollar Index rose 7 per cent during October 1, 2024 to January 30, 2025 with all major Asian currencies depreciating against the US Dollar. INR has depreciated 3.3 per cent during this period,” he said, indicating that various other currencies recorded much steeper fall.

South Korean Won and Indonesian Rupiah depreciated by 8.1 per cent and 6.9 per cent respectively in this period. Further, all G-10 currencies also depreciated during this period by more than 6 per cent with Euro and British Pound depreciating by 6.7 per cent and 7.2 per cent respectively,” he said.

Other reasons

Listing other reasons for the fall in the Indian Rupee, he said interest rate differential between US and India has narrowed. The US 10-year yield rose 74 bps during the October-January period, while the Indian generic 10-year yield remained relatively stable. “Foreign portfolio investments (FPI) outflows of around $20 billion from Indian markets between October 1, 2024 to January 30, 2025 contributed to the depreciation of INR against the US Dollar. The trade deficit of $31.8 billion for November 2024 also exerted pressure on INR,” he said.

In response to another question about the impact on Indian importers and exporters due to the fall in the rupee, Chaudhary said the depreciation of currency is likely to enhance export competitiveness which, in turn, impacts the economy positively. On the other hand, depreciation may raise the prices of imported goods. “The overall impact of exchange rate depreciation on domestic prices depends on the extent of the pass-through of international commodity prices to the domestic market,” he said.

Market-determined

Chaudhary admitted that the industries reliant on imported inputs may face cost pressures. However, besides exchange rate movements, exports and imports are determined by several other factors. For instance, global value chain integration necessities imports of intermediate goods for production and exports, and international prices of imported goods etc.  

“The value of the Indian Rupee is market-determined, with no target or specific level or band. RBI monitors key developments across the globe which may have an impact on USD-INR exchange rate,” Chaudhary clarified. Among others, it includes monetary policy actions of the major Central Banks, major economic data releases across the globe and their impacts thereof, OPEC+ meeting decisions, tracking, and analysing geo-political events, daily movements in G-10 and EME currencies.