RBI reportedly spent $30B in 4 months to stabilize rupee
What's the story
The Reserve Bank of India (RBI) has reportedly spent around $30 billion to stabilize the Indian rupee (INR) over the last four months, according to a report by SBI Research. The intervention was especially noted between June and September when the RBI is estimated to have intervened with about $18 billion in the forex market. Another estimated intervention of about $10 billion was made in October, taking the total expenditure to nearly $30 billion.
Reserve status
RBI's forex reserves and rupee depreciation
The RBI's forex reserves stood at $687 billion on December 5, a significant drop from the $703 billion recorded in June. Despite these interventions, the rupee's depreciation has only intensified. The fall in value has been a relief for exporters affected by US tariffs imposed earlier this year. November trade data showed a 19% increase in exports and an 11% rise in exports to the US.
Export impact
Rupee depreciation benefits exporters
Ajay Sahai, Director General of the Federation of Indian Exporters Organisations (FIEO), said the rupee's depreciation is helping labor-intensive sectors with low import intensity such as apparel, textiles, carpets, toys, sports goods, and agriculture products. However, he also clarified that this benefit is reflected in profit margins rather than increased sales. The long-awaited trade deal between India and the US could provide a more permanent solution to these issues.
Future prospects
Trade deal and currency depreciation
S Ganapathi, Vice Chairman and Managing Director of Gokaldas Exports, stressed the importance of a trade deal between India and the US. He said without tariff removal or resolution to the penal tariff of 25%, demand may slow down as both brands and suppliers bear extra costs. The lack of a trade deal by November has accelerated currency depreciation in December, marking the rupee's steepest fall in 12 years.