Indias foreign exchange reserves fell $5.14 billion in the week to October 12, the biggest such decline in a single week in about seven years, indicating the Reserve Bank of Indias (RBI) aggressive intent to cushion the rupee when it plunged to an alltime low against the dollar in that period.
Figures released by the RBI showed that reserves fell $5.14 billion to $394.46 billion in the week ended October 12, exceeded only by the $5.71 billion decline in the week to November 18, 2011, as the central bank likely sold dollars amid a sharp pullback by foreign institutional investors from the local markets.
In a note issued after the central bank published the data, Yes Bank economists Shubhada Rao and Vivek Kumar said they estimate RBI must have sold $6.2 billion during the week after adjusting for currency revaluations, drawing down reserves during that week.
“This happens to be the largest weekly decline in forex reserves since the Eurozone crisis,” the Yes Bank note said.
“Status quo by the RBI in the Oct policy review (in contrast to market expectations of a 25 bps rate increase) amid elevated levels of crude oil prices and a firm dollar are likely to have contributed toward USDINR touching an all-time intraday high of 74.48 during this week, which we reckon prompted such aggressive intervention by the RBI.”
“The market read RBIs unchanged rate as a signal to say that it is comfortable with a weaker rupee as long as inflation is in check, which led to even exporters holding back their dollar sales in the hope of getting a better rate,” Rao said.
Rupee strengthened from 67.08 per dollar at FY17 end to 64.50 by end-FY18.