HOW FOREIGN BANKS' DOLLAR SALES ARE STRENGTHENING THE RUPEE

Foreign banks have become important players in strengthening the Indian rupee by actively selling US dollars in the foreign exchange market.

- M R Yuvatha, Correspondent, siliconindia

As leading entities in currency transactions foreign banks facilitate foreign exchange liquidity management while volatility occurs in the market. The Indian market benefits from foreign banks' dollar investments because it raises foreign currency supply which forces the rupee to strengthen. The currency stabilization process accepts US dollars from markets resulting in rupee stability against the US dollar thus encouraging foreign investments and protecting the currency from substantial depreciation. The Reserve Bank of India (RBI) works jointly with banks to control market interventions which help preserve reasonable limitations on the rupee's exchange value.

The sale of dollars by foreign banks is not only driven by RBI's efforts but also by their own market assessments. Foreign banks initiate dollar sales if they identify a depreciated value of the rupee and an overpaid value of the US dollar. The rupee obtains further strength because this move reduces the price difference between Indian rupees and foreign currencies. Foreign banks increase the Indian economy's stability by managing currency exchange values through their dollar sales operations which reduces inflation and promotes better trade balance and helps build investor trust. The worldwide strengthening of the rupee depends heavily on the dollar sales provided by foreign banks.

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