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Forex kitty contracts $20 billion in April-July - The Economic Times https://economictimes.indiatimes.com/markets/forex/forex-reserves-dip-...

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Forex kitty contracts $20 billion in April-July


BY GAYATRI NAYAK, ET BUREAU | UPDATED: AUG 03, 2018, 08.30 PM IST Post a Comment

India’s forex reserves dipped $ 950.9 billion during the week ended July 27, to touch $
Big Change:
404.2 billion. Reserves have dipped by almost $20 billion since April this year. Except for
The end of Five-Year Plans: All you need to know
two weeks in between, reserves have been depleting every week since beginning of April
as the central bank sold dollars to salvage the rupee.

The rupee has lost 5.4% against the dollar between April and July 2018 as foreign portfolio
investors pulled out from Indian stock and bond markets after advance markets including the US Fed are seeing some monetary
tightening. Besides, higher dollar demand on account of rising crude and commodity prices is also causing the rupee slide.

Economists expect the Reserve Bank to continue selling its stock of dollar reserves which imply further depletion in reserves. “ We
expect the US-China trade war to further discourage FPI (foreign portfolio investors) flows, although the direct real impact will be limited
with exports just 12% of GDP” said Indranil Sengupta and Aastha Gudwani, India economists at Bank of America Merrill Lynch. “In
response, the RBI will need to step up forex sales ($10bn FYTD) to defend the rupee at Rs69 to the dollar given adverse seasonality,
banks’ low net nostro balances and a strengthening dollar”

They expect the government to launch NRI bonds and raise about $30-35bn to augment reserves if the rupee crosses Rs70 to the dollar
without any turnaround in capital flows by the December quarter. The Reserve Bank has been aggressively intervening in the currency
markets by selling dollar both in the spot as well as the forward market, yet the rupee continues to weaken against the dollar. The last
time when the rupee had touched Rs 68 in July 2013, the RBI had a special FCNR (foreign currency non resident ) deposit scheme
through which it raised around $ 30 billion and the rupee too strengthened substantially then.

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