India buys up $30b worth of dollars as worries about economy grow

Mumbai: The Reserve Bank of India has bought the most dollars among its Asian peers recently, a sign that the central bank may be worried about a sovereign credit downgrade, according to Australia & New Zealand Banking Group Ltd.

It purchased $30 billion of foreign exchange in the four months to July to bolster what is already the world's fifth-largest FX hoard. That accounts for more than half of Asia ex-China's $55 billion intervention during the period.

"The persistent intervention even when the Indian rupee had not been under strong appreciation pressure represents a change in the RBI's forex policy," the Singapore-based head of Asia research at ANZ, wrote in a note. This could reflect a "desire to build a bigger buffer amid India's deteriorating fiscal position to safeguard against a further downgrade in the sovereign rating."

With 4.6 per cent losses this year, the Indian rupee is the second-worst performer among emerging Asian currencies. The persistent intervention though may place India back on the US Treasury's semi-annual forex monitoring list soon, according to ANZ.

"RBI will continue to buy USD during periods of strong inflows," said Kaushik Das, chief India economist at Deutsche Bank AG. It wants to "to prevent an appreciation in rupee in real effective exchange rate terms, which could hurt export competitiveness, and to strengthen reserves adequacy position further."