India’s efforts to stabilise rupee crimp forex reserves

Astrong US dollar and subsequent interventions by the country’s central bank to stabilise the rupee drained over $1.80 billion (Dh6.61 billion) from India’s foreign exchange (forex) reserves, analysts said on Friday.

As per the Reserve Bank of India (RBI) weekly statistical supplement, the overall forex reserves plunged by $1.82 billion during the week ended August 10 to $400.88 billion from $402.70 billion reported for the week ended August 3.

According to Anindya Banerjee, deputy vice-president for Currency and Interest Rates with Kotak Securities, the decline in Forex reserves can be attributed to the RBI’s intervention to stem the decline in rupee’s fall. The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.

India’s forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs) and the RBI’s position with the International Monetary Fund (IMF).

Of late, factors such as geo-political developments and a wider trade deficit, along with outflow of foreign funds have pulled the Indian rupee down to fresh record intra-day and closing lows. On Thursday, the rupee had plunged to an intraday low level of 70.39-40 — its lowest ever — against the greenback prompting auto manufacturers and other import dependent sectors to raise prices. It settled at a record closing low of 70.16 against the US dollar on Thursday. FCAs, the largest Forex component, receded by $1.94 billion to $376.26 billion during the week.