MUMBAI: RBI's June dollar purchases lowest in four months as dollar inflows started amid uncertainties in the global markets. But it has doubled its dollar purchases in the forward market.
The Reserve Bank bought $4.4 billion and sold $ 2 billion in June, taking the net spot dollar purchases by the central bank to $ 2.4 billion, according to the latest figures released by the Reserve Bank of India. This is lowest spot dollar purchase by the Central bank since February this year, during which its net dollar purchases amounted to $ 4.9 billion from the spot market. The central bank was a net seller in June 2018, during which it sold a net of $ 6.1 billion.
But in the forward market, the central bank bought $ 4.9billion, as the outstanding forward sakes fell from $18.3 billion in May to $13.4 billion in June, RBI data indicates.
Foreign portfolio investors were cautious during the month bringing in a little over $ 1 billion during the month, almost one fourth the amount it brought into the country in May. The rupee weakened by about 1% during the month to end at Rs 69.05 by end June. Besides, the uncertainty in the global markets following the trade war between US and China has also made foreign currency flows to emerging market economies very volatile.
RBI may continue to go slow in dollar purchases as portfolio flows have slowed down post budget as the government proposed to raise long term capital gains tax and that would impact returns to the foreign portfolio investors.
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 in the local markets.
The government is working on a sovereign benchmark for external borrowing, which is expected to be finalised by September this year, post which one could see some pick up in dollar flows
Source: economictimes.indiatimes.com