India?s foreign exchange reserves for the last fortnight have dropped by more than $10 billion each week. For the week ended October 24, RBI data shows that reserves slipped $15.5 billion, or 5.65%?the largest drop ever?to $258.4 billion.
The decline was a result of major intervention by RBI in forex markets and a fall in the valuation of reserves as the euro slipped against the dollar. Due to the RBI measures, on Friday the rupee closed at 49.44/6 against the dollar, an improvement of 23 basis points. Last Friday, the euro fell to its lowest level in two years against the dollar, while the UK pound traded at a five-year low.
?The change in foreign-currency assets is partly because of changes in the value of the dollar against the euro, yen and other currencies during the period,? RBI?s weekly statistical supplement noted. In the first three weeks of October, India?s foreign exchange reserves dipped $32.50 billion, on top of a fall of around $5.4 billion in September.
The weakening rupee has also impacted the earnings of leading Indian companies this result season. Tata Motors said the company made notional forex losses of Rs 2.85 billion in the quarter. Bharti also suffered a Rs 5.85-billion notional loss.
Ranbaxy has estimated its forex loss at Rs 3.10 billion. A one-time writedown in the value of its foreign currency convertible bonds following the Indian currency?s steepest quarterly decline in 15 years weighed heavily on its performance. ?The quarter included foreign exchange translation losses of $73 million,? said Ranbaxy CEO & MD Malvinder Mohan Singh.
The rupee?s 8.4% erosion against the dollar in the three months ended September 30 has made this the currency’s worst quarterly performance in over 15 years. RBI?s weekly data shows that while the foreign currency assets fell to $249.4 billion, gold reserves held at $8.57 billion. India?s special drawing rights with the IMF rose $5 million to $9 million.
?With FII inflows drying up and outflows rising, reserves are getting depleted. ECBs are on the lower side, despite liberalisation, and FDI is not flowing in. Moreover, trade credit is not picking up. In such a situation, inflows are trickling in while outflows are very high, hence supplies are hampered,? said NS Venkatesh, MD & CEO, IDBI Gilts.
?The government and RBI will have to work hard to increase the supply of dollars. Schemes like the Resurgent India Bonds and others would help,? suggested a treasurer with a foreign bank.