Data released by Reserve Bank of India (RBI) shows the central bank bought 820 million dollar more than it sold in March, the first net purchase since 2010.
This shows that RBI wants to increase its forex reserves by taking advantage of the rise in foreign fund flows in the equity and debt market in the country.
A report by Bank of America Merrill Lynch estimates that the central bank has bought $1 billion since March and may buy an additional $8 billion through March 2014.
Some analysts feel that RBI wants to strengthen its foreign-exchange reserve position, which worsened considerably in recent times. The central bank will use capital inflows to rebuild its reserves. The RBI is likely to let the rupee strengthen once it is more comfortable with the current- account outlook, analysts feel.
RBI Governor Duvvuri Subbarao said recently India should be prepared for the probability of outflows next year as developed economies consider withdrawing stimulus measures.
Even so, Standard Chartered recommends investors buy the rupee to profit from a 4 percent gain by the end of this year as foreigners load up on debt after the government reduced taxes on the investments.
After declining 22 percent in the past two years, the rupee is little changed in 2013.
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