MUMBAI, DEC 6: The Reserve Bank of India's massive dollar selling exercise to arrest the steep fall of the rupee against the US currency has taken a heavy toll on the foreign exchange reserves. Foreign currency reserves of the country have plummeted by $ 1.98 billion (nearly Rs 7,600 crore) in November alone as the central bank used the forex kitty to reduce the rupee volatility.According to RBI figures, forex reserves (including currency reserves, gold and special drawing rights) fell from $ 30.09 billion on November 7 to $ 28.11 billion by November 28. The central bank sold dollars to make the rupee strong and weaken the dollar.The Indian currency fell sharply by almost six per cent from Rs 36.45 on November 5 to Rs 38.60 on November 26. The rupee touched a historic low of Rs 39.90 on December 2 before the RBI stepped in to announce a series of measures like hike in cash reserve ratio to curb the volatility in the forex market.However, the rupee bounced back in the last two days due to the RBI package and the successful launching of the GDR issue by MTNL. The $ 360 million raised from the MTNL issue is expected to make the rupee strong against the dollar. Besides, the government decision to go ahead with the GDR issues of IOC and GAIL is expected to have a psychological pressure on the dollar.Market sources don't expect further dent on the forex reserves following the rupee recovery to Rs 38.83 by Friday. RBI Governor Bimal Jalan has also warned speculators against pulling down the rupee. RBI had found that speculators were arbitraging between the money and the forex market to book profits. This forced the central bank to hike short term interest rates to suck out the liquidity in the money market. The RBI also banned rebooking of cancelled forwards contracts on non-trade transactions.However, there is another area of concern. For the first time since the stock markets were opened up to foreign portfolio investment three years ago, there has been a net outflow of Rs 550 crore ($ 148.7 million) through the foreign institutional investment (FII) route in November. This is in sharp contrast to Rs 984.70 crore ($ 272 million) investment made by FIIs in India in October.According to market sources, FIIs were major sellers in the Indian market due to the political uncertainty, depreciation of the rupee against the dollar and the currency/stock turmoil in South-east Asian countries.
