However, the launch of the second issue of Resurgent India Bonds in October, expected to raise about two billion dollars, would to some extent, help the rupee to strengthen, Institute of Economic Growth (IEG) said in its latest report.

It also projected that the foreign exchange reserves would be around $35.5 million by the end of October. The report pointed out that Rupee/Dollar exchange rate crossed the 46 mark in mid-September. The rupee value hit its all time low of 46.37 per dollar on September 19.

"The further depreciation in exchange rate is basically due to increase in the global oil prices. This volatile oil price has increased the dollar demand by the oil importers," the report said.

Reserve bank of India (RBI) instructions to all the banks to unwind the long dollar positions did not help the rupee to strengthen, it added. The report further said the increase in bank rate due to central bank's increase by one per cent, led to decreased money supply in the domestic market which in turn restricted the banks from going long on dollar positions and the consequent shortfall in the reserves.

The continuous increase in the trade deficit due to increase in the world oil prices have had it's negative impact on the reserves, it said adding that rising import bill had eroded the reserves to $35.36 billion in September this year from $38.34 billion in April, registering 7.79 per cent decrease.

Compounding the problem, profit taking sales of foreign inistitutional investments and increase in global interest rates also palyed its roles in the depletion of foreign exchange reserves, the report added.