Forex reserves fall $ 711 mn in 4 weeks

Attributing the volatility to the leads and lags created by short-term expectations and dollar demands of PSUs, FIIs and corporates, Jalan said RBI would continue to sell dollars through SBI in order to augment supply in the market or intervene directly to meet any temporary demand-supply imbalances.

In the past four weeks or so, for reasons which are not entirely clear (and which may presumably be related to prevailing conditions in the international equity and currency markets), foreign exchange markets in India have shown considerable uncertainty and exaggerated speculation about RBI’s intentions regarding the level of the exchange rate of the rupee, the RBI said.

The rupee virtually crashed to an all-time low of 44.75 against the dollar before the Reserve Bank stepped in and salvaged the currency in an extremely volatile and nervous foreign exchange market on Thursday. After the central bank imposed 25 per cent interest on overdue export bills, warned against speculation in the foreign exchange market and made some plain talking, the rupee made a stunning intra-day recovery of nearly 70 paise to close at 44.05/10. However, the rupee fell to 44.37 on Friday despite the RBI steps.

In the last one month, the rupee has actually strengthened by 3.3 per cent against Euro and by 5.2 per cent against Pound sterling. In relation to Japanese Yen, it depreciated only by 1.4 per cent, which was similar to the movement in relation to US dollar. Over the calendar year, however, rupee strengthened against yen by 3.4 per cent.

In the financial year 1999/2000, India’s foreign exchange reserves increased by US $ 5,546 million (or more than US $ 5.5 billion) despite several uncertainties including sharp increase in oil prices and Kargil developments. “At their current level country’s foreign exchange reserves are comfortable and more than adequate to meet any genuine requirements of foreign exchange,” RBI said.

NCAER had said the rupee depreciation is an attempt to bring about correction in the Indian currency which has remained stable against the US dollar. “In the last few months strong capital inflows and low imports kept the demand for the rupee high. Consequently, the rupee remained stable against the dollar. But, with the increasing strength of the dollar it has also become stronger against other currencies. This resulted in an appreciation of the real effective exchange rate of the rupee. The recent depreciation seems to be an attempt to bring about the necessary correction,” it said.

In the coming year, it is expected that the rupee is likely to continue to see pressure to depreciate. “If the inflation rate rises to erode the price competitiveness of exports there will be some pressure on the rupee to depreciate in the long run. In the medium run also, the higher current account deficit will put a downward pressure on the rupee,” NCAER said.