The Reserve Bank of India (RBI) recorded its highest net dollar purchase in the past three years, acquiring $41.27 billion in the financial year 2023-24 (FY24). This marks the largest net purchase since the financial year 2020-21 (FY21), when the RBI bought $68.3 billion. In March alone, the central bank net bought $13.2 billion, the highest monthly net purchase since June 2021, when it acquired $18.6 billion worth of dollars.
Active inflows
The RBI’s strategy involved absorbing a significant portion of active inflows, particularly those resulting from India’s inclusion in the JP Morgan bond index, to contain exchange rate volatility. This approach aimed to keep the rupee stable by intervening not only when the currency was under pressure and depreciating but also to prevent extreme appreciation during times of large inflows.
FY24 saw record foreign inflows into domestic markets, amounting to Rs 3.23 trillion, a notable turnaround from the Rs 45,365 crore worth of outflows recorded in 2022-23. Foreign investors injected Rs 1.2 trillion into the debt segment, marking the highest influx since 2014-15, according to data from the National Securities Depository.
Until March, inflows remained strong, coinciding with a lower trade balance, resulting in substantial dollar earnings. The RBI seized opportunities to accumulate dollars while ensuring the rupee remained stable against other currencies, contributing to the overall resilience of India’s foreign exchange reserves.
Forex reserves
India’s foreign exchange reserves expanded by $68 billion over FY24, with total reserves standing at $646 billion at the end of the financial year. This comes after a challenging 2022, during which the RBI net sold $25.5 billion worth of dollars, leading to a 7.5 percent depreciation of the Indian rupee against the US dollar. In contrast, the rupee depreciated by only 1.5 percent in FY24 and has appreciated by 0.1 percent in the current financial year so far.
