Despite $12.5-b prop, rupee remains battered; down 9.7%

According some analysts, a large part of the reserves could have been used to check the volatility in the forex market.

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Notwithstanding a $12.6 billion or 4.3% fall in forex reserves since the beginning of the current fiscal, much of which could have been used to contain rupee volatility, the currency still remains battered with a loss of 9.7%.

 

On Friday, however, the rupee breached a nine-week long losing streak against the US dollar.

 

According some analysts, who did not want to be named, a large part of the reserves could have been used to check the volatility in the forex market.

 

While the rupee lost 9.7% between April 2 (54.25 to the US dollar) and July 12, when it closed at 59.57, during the same period (between the weeks to April 5 and July 5), the forex reserves plunged by 4.28% or $12.48 billion to reach $280.17 billion from $292.65 billion.

 

The analysts said this indicates the central bank's efforts at containing the rupee volatility, which have not met with the desired results.

 

Meanwhile, according to Bank of America-Merrill Lynch India chief economist Indranil Sen Gupta, the RBI, whose official position is not targetting a level for the rupee but to contain volatility in the forex market, still has a leg-room of around $20 billion to support the rupee.

 

Significantly, this $12.5 billion plunge is a not even half the dollars that the RBI had sold between July 2012 and July 2011, as in that period the depletion in the forex reserves was a whopping $27 billion, to support the rupee.

 

According to the latest forex reserves data released by RBI on Friday, the reserves have plunged by a whopping $4.478 billion to $280.17 billion in the week to July 5.

 

Similarly, foreign currency assets, too, fell by $3.175 billion to $252.1 billion, according to the Reserve Bank data during the reporting week.

 

Out of this $12.5 billion forex reserves depletion, majority of it or $10.5 billion were sold during the past three weeks alone, when every week the rupee has been breaching new psychological levels, with July 8 begin the worst day as it closed at 61.20 against the dollar.

 

The analysts said the plunge has not only made the import cover whipsawed to just six months, it has also made the overall balance of payment position vulnerable as the country has to shell out a whopping $170 billion to pay back the short-term external debt over the next 12 months.