In June, the Reserve Bank of India (RBI) sold $3.66 billion in the spot foreign exchange market, as detailed in the central bank’s monthly bulletin. The RBI reported purchasing $1.16 billion and selling $4.83 billion during the same month. Previously, in May, the bank had acquired $1.76 billion from the spot market. In June, the domestic currency faced downward pressure due to uncertainties related to US tariffs and foreign investors withdrawing funds from India. The RBI opted to sell dollars to mitigate a sharp decline in the rupee’s value. Meanwhile, India’s external sector displayed resilience, characterized by a modest current account deficit and foreign exchange reserves sufficient to cover 11 months of imports.
This resilience has been a significant factor in maintaining a stable macroeconomic environment amidst a global trade atmosphere influenced by tariff changes and increased uncertainty, as noted in the Finance Ministry’s ‘Monthly Economic Review.’ In July, the rupee was among the least volatile currencies compared to major emerging market and developing economies (EMDEs), even with slight depreciation. The Indian currency experienced some appreciation against the US dollar in August, following the announcement of S&P’s upgrade of India’s sovereign rating, according to the bulletin. Regarding the Indian economy’s state, the RBI reported that industrial activity remained subdued in July, while both the manufacturing and services sectors showed growth, thus sustaining momentum.
Headline inflation decreased for the ninth consecutive month in July, with financial conditions remaining favorable and supportive of domestic economic activity. The S&P upgrade of India’s sovereign rating is expected to enhance capital inflows and influence sovereign yields positively. Additionally, India’s Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) increased by $41 million, and the country’s reserve position with the IMF rose by $15 million to $4.754 billion.