Forex Reserves Decline Anew By $584 Million

The Reserve Bank of India's aggressive intervention in the foreign exchange market through a clutch of public sector banks and the frenzied selling by the foreign institutional investors (FIIs) in the equity and debt markets in the aftermath of the terrorist attacks in the US have taken their toll on the country's foreign exchange reserves.

In the week ended September 21, the reserves declined by $ 584 million to $ 44.704 billion. This is the second consecutive week that the reserves have shown a downtrend. In the previous week, the forex kitty declined by $77 million.

In fact, the declining trend started in the first week of September when the reserves rose by a paltry $7 million marking the end of an uninterrupted run of burgeoning reserves for several months.

 

The rupee came under considerable pressure after of the terrorist strikes in the US on September 11 when uncertainty gripped the market with the FIIs turning net sellers in the equities and debt markets for the first time since the beginning of the calendar year.

It touched a low of 48.43 against the dollar on September 17, but has since recouped to 47.80-47.90 levels on account a host of factors including the receding fears about a full-scale US-Afghan war, soft crude oil prices, RBI intervention and dollar sales by exporters.

The fall in the forex reserves is solely on account of the decline in the foreign currency assets by $ 584 million to $ 41.883 billion. The gold reserves and special drawing rights remained static at $2817 million and $4 million respectively.

During the week, reserve money has declined by Rs 3,941 crore to Rs 3,01,823 crore. The currency in circulation has declined by Rs 2,005 crore to Rs 2,26,337 crore. Also, the bankers' deposits with the central bank has come down by Rs 1809 crore to Rs 71,909 crore.

The net RBI credit to the union government has come down by Rs 3,794 crore to Rs 1,45,917 crore during the week, while that to the banks and the commercial sector has gone up by Rs 624 crore to Rs 21,626 crore.

The ways and means advances (WMA) has come down by Rs 7,566 crore to Rs 1,223 crore. An auction is triggered off only when the WMA limit breaches the Rs 10,000 crore mark.

Market players are now expecting an auction to be announced by the RBI on behalf of the Central government only after the central bank effects a rate cut.