RBI’s Dollar Purchases Casting a Pall Over the Indian Rupee

Dollar purchases by the Indian central bank to limit the impact of foreign inflows are helping lead to shortages of the US currency in the Indian banking system and weighing on the rupee, according to analysts.

The rupee has given up all of this year’s gains, having been up about 1% at the beginning of May and among Asia’s best performers. Currency watchers say that’s because the Reserve Bank of India is mopping up dollars gushing into local stocks — sending a gauge of liquidity in the greenback to a more than six-year low.