RBI slowed down dollar purchases in May
The Reserve Bank bought $5.1 billion and sold $ 2.6 billion in May.
The Reserve Bank bought $5.1 billion and sold $ 2.6 billion in May, taking the net spot dollar purchases by the central bank to $ 2.5 billion, according to the latest figures released by the Reserve Bank of India. This almost half the level of net dollar purchases in April this year, during which the central bank bought a net of $ 4.9 billion from the spot market. The central bank was a net seller in May 2018, during which it sold a net of $ 5.8 billion.
The central bank has remained a very passive participant in the forward markets as well. It bought $224 million in the forward markets in May, the RBI data indicates. Foreign portfolio investors were cautious during the month bringing in a little less than a $ 1 billion during the month. Also foreign direct investment slowed during the month. The rupee weakened by about 0.1% during the month to end at Rs 69.65 by end May.
But post the elections, there has been an improvement in the foreign portfolio investments. The rupee has also gained against the dollar indicating strong inflows through a variety of sources.
Post budget, there has been some slowdown in portfolio flows in the secondary markets. But the proposal to raise dollar funds by the government to part finance its expenses is expected to increase dollar flows into the country which would require the central bank to purchase these dollars to release rupee funds.
The government is working on a sovereign benchmark for external borrowing, which will be finalised by September this year, post which one could see some pick up in dollar flows.