The attempts of the Reserve Bank of India (RBI) to arrest the fall in the rupee's value due to domestic political uncertainty and a strengthening US dollar drained $1.90 billion from India's foreign exchange (Forex) kitty, said experts on Saturday.
Overall, the Forex reserves stood at $351.73 billion for the week ended 6 November.
"The plunge in the reserves can be attributed to the attempts by the RBI to stem the fall in rupee value and maintain the currency in its comfort zone," said Anindya Banerjee, associate vice-president for currency derivatives with Kotak Securities. "The need for the defending the rupee arose due to strengthening of the US dollar on account of heightened chances of a US Fed-sponsored rate hike. This had flared up volatility in rupee value."
According to Banerjee, the RBI is comfortable with the rupee ranging anywhere between 65 and 67 to a US dollar. Anything beyond or below the limits provokes the central bank to intervene by either buying or selling the greenback.
India's Forex kitty had appreciated by $2.09 billion to $353.63 billion for the week ended 30 October. The rupee had been on a downward trajectory during the week under review.
On a weekly basis, the rupee had weakened by 49 paise to 65.76 to a US dollar (6 November) from its previous close of 65.27 to the greenback (30 October).
The rupee was dented due to heavy outflows of foreign funds during the week ended 6 November.
The foreign fund outflow was aggravated by investors' anxiety over the Bihar poll outcome and heightened chances of a US rate hike.
The National Securities Depository Limited (NSDL) data showed FPIs (Foreign Portfolio Investors) sold Rs 2, 455.83 crore, or $376.63 million, in equity and debt markets for the week ended 6 November. Stock exchanges figures showed FPIs sold stocks worth Rs 1, 462.05 crore in the period under review.
In addition, the weekly statistical supplement revealed foreign currency assets (FCAs) plunged 2.40 billion to $327.73 billion in the week under review.
"Another reason for the depletion in the reserves was the strengthening of US dollar by around 2 percent against pound, yen and euro. The euro had major falls during the week under review," said Banerjee.
The FCA constitutes the largest component of India's Forex reserves. It consists of US dollars, major non-dollar currencies, securities and bonds bought abroad. The Indian reserves consist of nearly 20-25% of non-dollar currencies. The individual movements of these currencies against the dollar impacts the overall reserve value.
"The FCA, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve," said the RBI in its statistical supplement.
Notwithstanding the general slide in the reserve value, the country's gold reserves rose $540 million to $18.69 billion during the week under review. The country's gold reserves had remained stagnant since week ended 2 October. The gold reserve had risen by $116.5 million to $18.15 billion during the week ended 2 October.
However, special drawing rights (SDRs) in the week under review were lower by $27.5 million at $4.00 billion. Furthermore, the country's reserve position with the International Monetary Fund slipped $8.9 million to $1.29 billion.