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Attempts to stabilise rupee reduced Forex reserves, say experts

Last Updated 23 January 2016, 17:36 IST

 Attempts to arrest the fall in the rupee’s value, coupled with massive outflows of foreign funds from equity and bond markets reduced India’s foreign exchange reserves (Forex) kitty by $1.726 billion, experts said on Saturday.

According to the Reserve Bank of India’s (RBI) weekly statistical supplement, the overall Forex reserves stood at $347.20 billion for the week ended January 15.

The foreign reserves kitty had plunged by $1.43 billion to $348.93 billion for the week ended January 8.

Analysts attributed the depletion to the central bank’s attempts to arrest the fall in the rupee’s value.

“The reduction in the Forex reserves is primarily caused due to RBI’s dollar sales. The apex bank has been selling dollars to stabilise the rupee,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, said.

According to Banerjee, the dollar sales even wiped out the foreign currency gains made on the back of a weak US dollar during the period under review.

“The dollar index had declined by 0.50 per cent in the week under review. The reserves should have risen due to the weak dollar index, instead it declined,” Banerjee added.

In addition, the foreign currency assets (FCAs) which is the largest component of India’s Forex reserves declined by $1.723 billion to $324.67 billion in the week under review.

Apart from the US dollar, the FCAs consist of nearly 20-30 per cent of major non-US dollar global currencies, securities and bonds.

Other market observers alleged greater dollar sales by the RBI in the ‘Forwards’ and ‘Futures’ markets.

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(Published 23 January 2016, 17:36 IST)

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