India’s foreign exchange reserves saw the biggest weekly fall since May 2013, reflecting the Reserve Bank of India’s intervention in the exchange rate market in the wake of the global market turmoil last week.
Forex reserves were down by $3.4 billion in the week ended August 28 to $351.9 billion, data from the RBI showed.
In the same week, the rupee had plunged by 1.4% to fall past the key 66/$ level and hit a fresh two-year low on the back of a sharp fall in global equity markets and currencies.
On August 24, RBI governor Raghuram Rajan had said that the central bank would not hesitate to use forex reserves to stabilise the rupee.
Reserves had last fallen by $4.2 billion in the week ended May 31 in 2013 when foreign portfolio investors had begun exiting India in droves and the central bank had to intervene and sell dollars heavily. The year saw the rupee hit an all-time low of 68.85/$ by August as FPIs pulled out record amount of dollars from the debt market.
While the depreciation of the currency this time around has been similarly quick, it has been contained easily. The currency has fallen only by 4% and is still overvalued in terms of real effective exchange rate.
Also, given the improved current account deficit, higher returns on debt compared with most other emerging markets and greater confidence owing to an increase in the forex reserves itself, the fall of the rupee is likely to be
Part of the fall in the reserves could also be attributed to valuation changes given the sharp movement in the currencies globally. The RBI invests a large part of foreign currency assets in US treasury notes and the remaining in assets denominated in euro and other currencies. The dollar has gained phenomenally against most currencies, which could have resulted in a drag on the reserves.
The gold reserves stood unchanged at $18.250 billion.
India’s special drawing rights with the International Monetary Fund fell by $7.1 million to touch $4.067 billion in the week under review, while the nation’s reserve position with the Fund declined by $2.3 million to $1.295 billion, the apex bank said.