India’s forex kitty shrinks USD 19 billion since March on stronger dollar

MUMBAI:  India’s foreign exchange reserves fell by nearly $19bn since March-end, through $588.31bn as of July 1, due to a depreciation of non-dollar currencies against the greenback held as part of RBI’s multi-currency portfolio, called Foreign Currency Assets (FCA).

FCA fell by $15.97 bn to $524.74bn over the period. On a weekly basis, the FCA fell by $4.47bn, accounting largely for the $5bn decline in the country’s total forex reserves.

The fall in FCA clearly reflects the strength of the dollar against a host of other major currencies over the period as the US Fed began an aggressive monetary tightening policy to rein in retail price inflation which remains at a 40-year high, exacerbated by the war in Europe, which raised the price from food to fuel.

The FCA held by RBI includes major currencies like the USD, Euro, Pound Sterling, Japanese Yen, etc, which are valued in terms of the dollar.

The other major drag on the forex reserves was the fall in gold reserves since March-end by $2.12 bn to $40.42 bn. On a lesser note, RBI’s special drawing rights – international reserve asset created by IMF -- declined by $758mn through $18bn and reserve position in IMF was down by $129mn to $5bn since March-end.

The rupee hit a life low of 79.37/38 recently and closed at 79.26 on Friday. Economists expect the rupee to continue weakening as the dollar heads for parity against the Euro and to test the psychological 80-mark.

RBI has intervened in the currency market, selling dollars through banks, and liberalising capital flows more recently.

However, as the dollar keeps strengthening, these measures might only serve to stem a sharper fall than the 4.3% depreciation in the rupee since March-end, said Madan Sabnavis, chief economist, Bank Of Baroda.

Meanwhile, Nifty and Sensex posted over half a per cent gains, as FIIs covered their bearish bets in the index futures segment and tapered their selling in the cash market.