India's forex reserves fall to Rs -yr low

India’s foreign exchange reserves touched a one-year low on December 30, according to the Reserve Bank of India. The reserves fell by $4 billion to $297 billion, from $301 billion in the week before. The reserves have declined by $24 billion since early September. The foreign exchange kitty stood at $321 billion on September 2. The dip has been due to revaluation in foreign currency assets and a fall in the value of gold reserves.

“There are two strong reasons for the fall in the reserves. The first one is the continuous intervention by the regulator to curb extreme volatility in the rupee. The second reason is the dollar has been appreciating against all currencies,” Moses Hardings, head — global research, IndusInd Bank, said. Hence, all non-dollar assets, including gold, were bound to lose value on a mark-to-market basis, he said. RBI sold $1.8 billion during September-October to curb rupee volatility.

Foreign currency assets fell by $2.7 billion to $263 billion over the last week and gold reserves stood at $26.6 billion, down by $1.4 billion.

However, the fall in gold reserves was notional. Special drawing rights (SDRs) and the reserve position in the International Monetary Fund (IMF) also fell. While SDRs came down by $19 million to $4.4 billion, the reserve position in the IMF was down by $12 million to $2.7 billion.

Although most experts were of the view that the fall in the reserves was primarily due to intervention by the regulator and dollar appreciation, some said payout on account of government expenditure might be accentuating the fall. While during September-December 2011, fall in the foreign exchange reserves was around $24 billion, the reserves fell by $34 billion in the comparable period of 2008.

Economists said outlook on the foreign exchange reserves was bleak in the short run. “Till the dollar liquidity improves and the rupee appreciates, one cannot expect the reserves to increase substantially. This is unlikely to happen in the near term,” Hardings said.