RBI sold $213 billion on gross basis in FY23, up 120% from FY22

RBI Bulletin: Central bank net buys $750 million foreign currency in March

The Reserve Bank of India (RBI) sold a massive $213 billion worth of foreign currency on a gross basis in 2022-23, according to data released by the central bank in its monthly bulletin on May 22.

The RBI's foreign currency sales, up a huge 120 percent from 2021-22 in gross terms, is a crucial source of income for the central bank as it generates a profit on these sales on account of the sale price being higher than the historical average acquisition cost.

Economists have pegged the historical average acquisition cost of the RBI's foreign currency holdings in the range of Rs 62-65 per dollar. Meanwhile, the rupee's median monthly exchange rate against the US dollar ranged from 76.2 to 82.7 in 2022-23. As such, every dollar sale over the year would have generated a substantial profit.

The RBI sold a lot of dollars in 2022-23 as it tried to bring down volatility in the rupee's exchange rate following the turmoil that roiled global financial markets after Russia's invasion of Ukraine in February 2022. In addition to the financial market volatility caused by the war, the rupee also came under severe pressure in 2022-23 on account of a sharp rise in the import bill as global commodity prices surged.

The massive FX sales in some way explain the far larger than budgeted dividend that the central bank will give to the central government this month.

On May 19, the RBI's central board of directors approved the transfer of Rs 87,416 crore as dividend, nearly Rs 40,000 crore more than the Rs 48,000 crore the government had expected to get. The dividend is nearly three times the Rs 30,307 crore the RBI had transferred to the government for 2021-22.

In terms of the monthly data, the central bank purchased $750 million worth of foreign currency in March on a net basis. In gross terms, the purchases amounted to $6.91 billion, while sales were $6.16 billion.

Further, the RBI bulletin showed that in the forward market, the RBI's outstanding position was a net purchase of $23.6 billion as at the end of 2022-23 compared to $20.47 billion at the end of February. Most of the RBI's forward activity is in the 'more than 3 months and upto 1 year' bucket.