909 million fall in forex reserves

MUMBAI, June 20: With the threat of sanctions now becoming a reality and global rating agencies downgrading India, the foreign exchange rese...

MUMBAI, June 20: With the threat of sanctions now becoming a reality and global rating agencies downgrading India, the foreign exchange reserves of the country have fallen by US 909 million Rs 3,818 crore to 27.57 billion in a week.

This 3.3 per cent fall in forex level follows massive intervention by the Reserve Bank of India RBI in the foreign exchange market to prop up the rupee and withdrawal of funds by foreign institutional investors FIIs from the stock markets.

This is the first time in recent years that the RBI is witnessing such a major outflow of foreign exchange reserves, thereby raising the memories of the forex crisis in the 1991-92 period. As a result of sanctions and downgrading by global rating agencies, fresh inflow of forex reserves is likely to be affected in the coming months, banking sources said.

According to the RBI, total foreign exchange reserves including foreign currency assets, gold and special drawing rights have fallen to 27.570 billion as on June 12 from 28.479 billion as on June 5. Forex reserves were falling ever since sanctions were imposed against India and FIIs started pulling out funds.

In fact, there was an outflow of a whopping amount of 1.187 billion during the fortnight which ended on June 12 8212; the withdrawal during the previous week was 278 million.

The RBI 8212; through the State Bank of India 8212; has been selling dollars in the forex market to prevent the rupee from crashing against the dollar the rupee becomes strong when there is abundant supply of dollars and the RBI uses forex reserves to maintain stability on the exchange front. Apart from this, FIIs were selling shares on the Indian stock markets and pulling out funds.

As the global rating agency, Moody8217;s, has downgraded India8217; rating, the rupee is likely to come under pressure next week. This means the RBI will have to intervene by selling dollars from its forex kitty, thereby further depleting the reserves position. 8220;The RBI will not hesitate to use its reserves as needed tomeet the country8217;s external obligations and its current account deficit, if at all needed,8221; RBI Governor Bimal Jalan had said in a statement last week.