The Reserve Bank of India (RBI) recently took a strong stance in the foreign exchange market, aggressively selling dollars to support the Indian rupee amid portfolio outflows and global economic uncertainties, particularly the US’s tariff policies.
Over two consecutive days, the RBI sold approximately $8 billion, which helped the rupee recover from its low of 87.95 to 86.82, marking its sharpest rally in nearly two years. This intervention occurred despite a strengthening US dollar, with the dollar index rising to 108.40, exacerbating pressures on emerging market currencies. India’s forex reserves currently stand at $630.6 billion as of January 2025, providing the RBI with the necessary resources for such interventions.
India’s Export Landscape and RBI’s Strategy
India’s main exports include petroleum products, gems and jewelry, and machinery, with petroleum being the largest contributor, reflecting its significant refining and manufacturing sectors. The RBI’s strategy reflects a dual-purpose approach: first, to encourage exporters to convert their dollar earnings into rupees, thus bolstering forex reserves; second, to reduce speculative activities that cause excessive volatility.
Comparative Analysis: RBI vs. CBN
The central bank’s actions highlight its crucial role in maintaining currency stability through direct intervention, particularly in times of external economic shocks. Parallels can be drawn with Nigeria’s foreign exchange (forex) policy management, especially as the Central Bank of Nigeria (CBN) has similarly intervened in the market to stabilize the naira. Nigeria’s forex reserves, however, are much smaller, standing at $39.497 billion as of February 2025.
The CBN’s interventions typically range from $100 million to $500 million per day, depending on the market’s volatility and the immediate needs of the naira. Nigeria’s main exports, primarily crude oil and natural gas, dominate its economy and account for the majority of foreign exchange earnings. Like the RBI, the CBN has also engaged in managing speculative pressures and controlling the market to preserve the nation’s forex reserves.
Parallel Market Dynamics in Nigeria
However, in Nigeria, the black or parallel market has become a more significant challenge than in India, exacerbating the volatility of the naira and undermining the effectiveness of official market interventions. The CBN faces considerable difficulty in addressing the impact of parallel market activities, which often lead to wider gaps between official and market exchange rates, making the currency management strategy more complex.
Both nations are faced with balancing domestic economic needs and managing external pressures, but Nigeria’s struggle with parallel market dynamics is a particularly pressing issue that complicates its currency stability efforts.
