The Reserve Bank of India (RBI) continued its foreign exchange market interventions in December, selling a net $15.1 billion in the spot market. This followed a record net sale of $20.2 billion in November, as per data released on Wednesday. By the end of December, the RBI’s net short position in the forward market had increased to $67.9 billion, up from $58.9 billion in the previous month.

According to the central bank’s monthly bulletin, it purchased $53.8 billion and sold $69.04 billion in foreign currency during the month. The Indian rupee depreciated by 1.31% in December, influenced by multiple factors. A treasury head at a private bank explained that RBI’s intervention was necessary due to sudden capital outflows, while inflows remained gradual. "The central bank had to act to contain volatility," he said.

He also noted the impact of global currency movements, stating, "Beyond the dollar index, the decline of the Chinese Yuan exerted additional pressure on the rupee." The dollar index, which measures the strength of the U.S. dollar against a basket of six major currencies, rose by 2.75% in December, adding to the rupee’s weakness.

Meanwhile, the Real Effective Exchange Rate (REER) of the Indian Rupee, which indicates its value against a basket of currencies adjusted for inflation, continued to moderate. It fell to 104.82 in January from 107.20 in December 2024. This marks a reversal from its earlier upward trend, as REER had increased from 103.66 in January 2024 to 108.14 in November 2024. Overall, RBI’s actions reflect its ongoing efforts to manage currency stability amid external pressures, global currency fluctuations, and evolving market dynamics.

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