Foreign exchange reserves fell by $1.65 billion in the week ended December 5 to $314.66 billion, the biggest weekly decline in two months, RBI data showed. Forex assets declined by $867 million during the week to $289.95 billion, indicating the RBI may have sold dollars in the forex market to prevent a sharp fall of the rupee.
The rupee shed 0.81% this week to close at 62.30 on Friday, a 10-month low. According to currency dealers, the central bank has been selling dollars around 62.35/$ level to prevent a further depreciation of the rupee. Baring this likely sale of dollars, RBI has largely been a net buyer of dollars in 2014, both in the spot and forward markets. In fact, some currency market participants believe a large part of the rupee’s depreciation has been due to RBI’s dollar purchases.
During the January-October period, RBI bought a total $24.7 billion to soak up big dollar inflows into the debt market, the central bank’s bulletin shows. Foreign investors have been pumping in dollars, primarily into the debt market.
FIIs have poured $26.2 billion so far in 2014 in bonds. FIIs also invested around $16 billion into equities. This big inflow of dollars has reflected in the forex reserves as well. Since January, reserves showed an accretion of $21.5 billion.