Context:
The REER of the Indian rupee dropped to 101.49 in March 2025, down from 102.37 in February, as per RBI’s monthly bulletin. The REER had peaked at 108.14 in November 2024, before steadily falling through December (107.2) and January (103.66).
Market Commentary and Economic Insights
- According to Sakshi Gupta, Principal Economist at HDFC Bank, the rupee initially depreciated in March but stabilized later due to capital inflows.
- She noted that in April, the REER is expected to remain stable as global currencies are broadly steady or strengthening.
Inflation Differential Impact
- The drop in the 40-currency REER also reflects the narrowing inflation gap between India and key trading partners, enhancing rupee competitiveness.
RBI’s Forex Market Operations
- The RBI’s net short dollar position in the forward market increased to $88.7 billion at the end of February, up from $77.5 billion in January.
- In the spot market, the RBI:
- Net sold $1.6 billion in February, following a net sale of $11.1 billion in January.
- Conducted total forex transactions worth $45 billion (buying) and $46.6 billion (selling) in February.
Yearly Intervention Summary
- For FY24, the RBI net purchased $41.27 billion in the foreign exchange market.
- February 2024 alone saw a net purchase of $8.5 billion by the central bank.
Breakdown of RBI’s Forward Dollar Positions
- Of the $88.7 billion forward exposure:
- $14.7 billion in one-month contracts
- $18.8 billion in one-to-three-month tenures
- $45 billion spread across three-month to one-year swaps
- $10 billion in contracts of more than one year
