India's foreign exchange reserves were down $17.23 billion y-o-y as of September 6 at $274.81 billion, reflecting the sharp fall in rupee and the central bank's interventions in the market, RBI data show.
However, on a week-on-week basis, the reserves saw a moderate dip of just $685 million for the week ended September 6. Last week, the reserves had fallen by a massive $2.2 billion due to heavy dollar sales by the RBI to protect the rupee.
The RBI has been selling dollars persistently to check rupee's fall. The currency depreciated by a massive 21% between April and August, and hit an all-time low of 68.85/$ during this period. It has since then recovered and ended at 63.50/$ on Friday.
To curb the rupee volatility, RBI sold $5.98 billion in the exchange rate market in July, according to the central bank's bulletin. Currency dealers said that the central bank had sold heavily during August as well. Besides selling in the spot exchange rate market, RBI had also taken several measures to lure dollar inflows and to prevent outflows from the domestic debt market.
It raised short-term interest rates by hiking the Marginal Standing Facility rate to 10.25% and capping banks' access to funds from the repo tender at 0.5% of their deposits. Newly appointed RBI governor Raghuram Rajan also announced further measures earlier this month, such as allowing exporters to rebook forward contracts of up to 50% of cancelled contracts and allowing importers to rebook 25%.
Rajan gave banks special swap facilities to hedge the dollar funds raised through foreign currency non-resident deposits and overseas borrowings. These measures have given a fillip to the rupee and the need for central bank intervention may be more modest in coming days, say traders.