The Reserve Bank of India sold $9.76 billion on a net basis in the foreign exchange market in March, shifting to a net selling position after two consecutive months of net purchases. The move came as the Indian rupee weakened sharply, pressured by surging energy costs linked to the Iran war.
Across March the rupee lost 4% of its value, marking its steepest monthly fall in more than six years. The currency dropped to a then-record low of 95.21 per dollar during the month, prompting regulatory measures aimed at taming market swings.
Gross intervention numbers for March show the RBI bought $19.88 billion and sold $29.64 billion. Those flows contrast with February activity, when the central bank was a net buyer to the tune of $7.4 billion. At the end of March the RBI's net outstanding forward dollar sales stood at $103.06 billion, up from $77.7 billion at the close of February.
The deterioration in the rupee and the central bank's altered market stance followed disruptions to global energy markets tied to the Iran war. Higher energy prices and the geopolitical shock accelerated foreign portfolio outflows from Indian equities and bonds at a record pace, according to market accounts, as investors weighed heightened risks to India's growth and inflation dynamics. India is heavily reliant on energy imports, a factor highlighted by market participants when assessing the country's exposure to the conflict.
Policy and market observers noted that the combination of a weaker currency, larger forward dollar exposure and rapid capital outflows presents challenges for macroeconomic management. The RBI's substantial gross transactions in March and the rise in net forward sales reflect efforts to manage exchange-rate volatility while responding to external shocks to energy costs and capital flows.
Markets will be watching subsequent foreign exchange and capital flow developments closely as conditions evolve from the Iran conflict and associated energy market volatility.