RBI intervened heavily in currency market in Nov

For the third month in a row, the Reserve Bank of India sold dollars in November 2011 to support the depreciating rupee.

The central bank sold $2.9 billion in November, according to its latest ‘Current Statistics' data. It also added a forward sales contract for $1.6 billion (outstanding) by end-November.

Contrary to popular belief that the RBI has followed a hands-off approach in the currency market, it has clearly been intervening to ward off volatility.

The extent of the central bank's intervention was much bigger in November than in preceding months. November dollar sales were a big jump from the $845 million and $943 million sold in September and October respectively. This was also the highest quantum of sales in 32 months.

This intervention comes on the back of the rupee slipping to a low of Rs 52.4 in November from Rs 48-49 levels seen in October.

In all, the rupee plunged 7 per cent in November alone. The RBI has not purchased any dollars so far this fiscal given the rupee's slide since August.

Interestingly, as the RBI intervenes only when rupee appreciation/depreciation is abnormally high, it also ends up buying dollars at lows and selling at its high points.

Buy low, sell high

For instance, the average selling price this fiscal (up to November) was Rs 50.3 a dollar as against its average buying price of Rs 44.72 in FY-11. It was a net buyer of dollars in the whole of FY-11.

Similarly in FY-09, the RBI sold $34.9 billion at Rs 51 a dollar. The RBI sold more dollars than it bought that year. The rupee slid 21 per cent in FY-09, post the global economic crisis.

However, in the year before that, it had bought close to $76 billion at Rs 39 to counter the sharp appreciation in the rupee as a result of capital inflows in 2007.

>vidya@thehindu.co.in

>mvssantosh@thehindu.co.in

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