The Reserve Bank of India (RBI) was a net seller of the US dollar in August, reversing its net buying position from July.
During the current financial year up to August, the central bank had sold a net $1.11 billion.
The RBI sold a net total of $6.49 billion worth of the foreign currency in August, according to the central bank's monthly bulletin.
The RBI bought $16.14 billion, while it sold $22.63 billion of the foreign currency in August.
The central bank had recorded a net purchase of $6.93 billion in the spot market in July.
Market participants said the RBI sold dollars during August as investors exited from carry trades, which utilised the Chinese yuan and Japanese yen to fund long positions on the rupee.
The Indian unit was hitting fresh lows during the month.
“The net selling was because of carry trade unwinding which was happening in August,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
The local currency had depreciated by 0.17 per cent in August.
The central bank had net sold $3.85 billion in August 2023.
In the previous financial year, the RBI bought a net $41.27 billion.
The RBI’s net outstanding forward sales by the end of August stood at $18.98 billion, against $9.10 billion in July.
“The RBI was selling around Rs 83.97 per dollar level to protect the rupee from breaching the 84 mark which is being reflected here,” said a dealer at a state-owned bank.
The real effective exchange rate (REER), which indicates the value of the Indian rupee compared to other currencies, decreased slightly from 105.44 in August to 105.15 in September.
A lower REER suggests that the rupee became slightly more competitive internationally.
India's foreign exchange reserves reached an all-time high of $704.9 billion on September 27, 2024, before slightly declining to $690.4 billion as of October 11.
These reserves are sufficient to cover 11.8 months of imports and exceed 101 per cent of the country's total external debt as of end-June.
During 2024 (up to October 11), India's reserves saw a net increase of $68 billion, positioning the country as the second-largest accumulator of foreign reserves, behind China.
