RBI sold $6.1 billion in May to steady rupee
The Reserve Bank of India (RBI) stepped in big time this May, selling $6.1 billion to help steady the rupee after it slid to a record low of 96.96 per US dollar.
This sharp drop was mainly because oil prices shot up during the Iran war and global bond yields climbed, putting extra pressure on India's currency.
RBI incentives drew foreign inflows
To keep things under control, the RBI not only ramped up its dollar sales, buying $22.2 billion and selling $28.3 billion in May, but also rolled out tax breaks for foreign investors and offered perks for bringing in overseas deposits.
These moves helped bring more foreign money into Indian stocks and bonds by June, while strong foreign exchange reserves (enough to cover 10 months of imports) provided a safety net.
Inflation is still a concern thanks to pricey food and patchy monsoon rains, but stable core inflation and solid public grain stocks should help cushion the blow.