Bloomberg News

India Sells Most Dollars in Three Years to Stem Rupee Decline

February 13, 2012

Feb. 13 (Bloomberg) -- India’s central bank sold the most foreign currency in three years in December, official data showed, as the rupee plunged to a record against the dollar.

The Reserve Bank of India sold $7.81 billion in December, according to a report published on its website today, the most since October 2008. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

The rupee fell 16 percent last year, the worst performance in Asia, as Europe’s debt crisis slowed global growth and damped demand for emerging-market assets. It dropped to a record 54.3050 a dollar on Dec. 15. The currency has rebounded 7.9 percent in 2012 to 49.195 per dollar in Mumbai, after the authorities took steps late last year to curb speculation and volatility in the foreign-exchange market and attract foreign investment.

Higher capital flows also boosted the rupee as Greece continued negotiations aiming to secure an international bailout. Overseas funds increased holdings of Indian shares by $4 billion this year.

The government allowed foreign investors to buy $10 billion more rupee-denominated bonds and opened up a part of India’s retail sector to foreign-direct investment. The central bank tightened rules on trading in the domestic currency-forwards market, made it easier for Indian companies to borrow overseas, and raised interest rates on local bank deposits owned by Indians living abroad.

--Editors: Abhay Singh, Sam Nagarajan

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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