India’s Forex Reserves Slide On RBI Intervention

India’s forex reserves fell for the fourth consecutive week, due to likely intervention by the Reserve Bank of India to cushion the rupee’s slide.

Foreign exchange reserves stood at $417.7 billion as of May 11, showed data released by the RBI on Friday. Reserves slipped by $1.2 billion over the week and have declined by $6.8 billion since the end of March 2018.

India’s forex reserves had peaked at $426 billion as on April 13, shows RBI data.

India’s Forex Reserves Slide On RBI Intervention

While exact data on the RBI’s forex purchases and sales comes with a lag, some part of the fall in reserves is likely due to the central bank stepping in to smoothen volatility in the currency markets. The RBI is said to have sold between $1-1.5 billion in the latest week to support the rupee, said a forex trader speaking on condition of anonymity.

The rupee has weakened close to 6 percent since the start of the year due to a combination of factors, including foreign portfolio investors selling Indian debt holdings. So far this calendar year, foreign investors have sold nearly Rs 24,000 crore in Indian debt.

RBI has been intervening by selling dollars since April this year to stem the rupee’s fall which would have otherwise been far sharper.
Indu Gopalakrishnan, Vice President, RBL Bank

Some believe that pressure on the rupee could lead to the RBI considering extra-ordinary measures later in the year, to ensure forex reserves remain comfortable.

“We expect RBI to raise $30-35 billion by issuing a fourth tranche of NRI bonds in 2018 with oil breaching $70/bbl,” wrote Indranil Sen Gupta of Bank of America-Merrill Lynch in a report earlier this week. He added that the RBI has expended $4 billion from reserves in the spot market so far.

The last time the RBI had to resort to drawing funds from NRI was in 2013, when a special window for foreign currency non resident (FCNR) deposits was opened to shore up reserves.

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