Reserve Bank of India's dollar sale

Mecklai graph of the day: The widening CAD due to the gold imports and a weaker rupee has pushed the economy into an ossified growth cycle. So it was necessary on part of RBI to increase their reserves in order to maintain adequate level of reserves for reducing CAD.

Mecklai graph of the day: RBI dollar sales

The foreign exchange reserves of Indian Rupee in terms of the US Dollar saw an increase from USD 288.3 bn in May 2012 to a whooping USD 293.7 bn in May 2013 which is recorded as a jump of 1.84 percent in the past one year. As seen from the graph, every now and then RBI has been the net seller of the dollar in order to stem the depreciation of rupee in the past. An ever increasing current account deficit has posed problems for the economy. The widening CAD due to the goldimports and a weaker rupee has pushed the economy into an ossified growth cycle. So it was necessary on part of RBI to increase their reserves in order to maintain adequate level of reserves for reducing CAD.

And to meet the same, RBI has started purchasing USD, as seen in the graph RBI has bought net USD 820 mn in Mar 2013. Moreover, RBI’s engagement into currency swap with Bank of Japan in December 2012 was aimed at replenishing its reserves which saw an erosion on account of currency intervention.

Below graph depicts the net purchases/ sales of US dollar by the RBI since April 2012