The Reserve Bank of India has stepped up foreign exchange market interventions to support the rupee, which came under pressure as foreign portfolio investors withdrew an estimated $8.5 billion from Indian debt and equity markets over the past month.
The RBI is reported to have sold approximately $12 billion in foreign reserves during March, drawing down its reserves to $620 billion — still among the largest in the world but reflecting the scale of intervention required.
"The RBI has both the tools and the resolve to maintain orderly conditions in the foreign exchange market," said the RBI Governor. "Our reserve buffers are more than adequate to manage episodes of external volatility."
The capital outflows have been attributed to a combination of factors, including rising US Treasury yields drawing capital back to dollar-denominated assets, concerns about India's fiscal deficit trajectory, and portfolio rebalancing by major global asset managers.