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Reserve Bank of India's intervention (net sale of dollars) in the foreign exchange market during the month of February was $320 million. This is the lowest since it began protecting the rupee from excess volatility last September.
Recognising the need to improve its reserves, the RBI not only sold lesser dollars in February but also managed to purchase dollars at a lower price.
The central bank purchased $1.11 billion from the forex market while it sold $1.43 billion during this period. Taking into account the rupee equivalent of the contracts, it seems that the net purchase was at a lower price than the sale price which implies that the RBI has made profits from intervention. The purchase of dollars was the first since November 2010.
Despite a net outflow of $320 million, the foreign currency assets rose by $2.8 billion from January-end to $261 billion as of February 24, 2012. The latest foreign investment inflows data suggest that foreign institutional investors have brought $9.2 billion in February — the highest inflow in a month since October 2010.
NRI deposit inflows of $602 million in February have also supported the foreign currency inflows.
During the period of intervention, the RBI sold a little more than $20 billion worth of foreign exchange as against $24.9 billion fall in foreign exchange assets. This indicates that the net outflows (after taking into account the valuation loss) were low despite widening current account deficit.
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