Mecklai graph of the day: The balancing act
RBI has been the centre of attention for its intervention and probable actions to curb ongoing depreciation in rupee. In a bid to do so, the foreign exchange reserves have dipped sharply by USD 2.82 billion to USD 287.85 billion due to a fall in currency assets for the week ended June 21, says Mecklai.
July 08, 2013 / 18:28 IST
Mecklai graph of the day: The balancing act
Of late, RBI has been the centre of attention for its intervention and probable actions to curb ongoing depreciation in rupee. In a bid to do so, the foreign exchange reserves have dipped sharply by USD 2.82 billion to USD 287.85 billion due to a fall in currency assets for the week ended June 21 while the total reserves had gone up by USD 982 million in the previous reporting week.High current account deficit along with global dollar strength has taken a toll on rupee and the central bank has been trying to reduce the volatility in the market rather than protecting any particular level, as reiterated by the Governor yesterday. To meet the liabilities RBI will need to rebuild FX reserves to defend the rupee in a troubled world. After all, depreciation of the rupee creates pressure on inflation and ends up delaying rate cuts and, by extension, economic recovery. It had rightly begun to shore up its sliding foreign exchange reserves as it bought the US dollars from the market for the first time in 28 months in March as overseas investors poured in seeking higher returns. It also purchased dollars in the forward market as outstanding forward sales dipped to USD 11 billion in March, from USD 12 billion a month earlier.However, fall in rupee has dented its plans to build reserves for now and as per BOP estimates they cannot buy more than USD 5 billion in the normal course this fiscal. It will thus have to augment this by some one-off big bang mobilization like issuance of India Millennium Deposits, NRI bonds etc. It would be interesting to see how RBI maintains the balance between building reserves and arresting the slide in rupee. Below graph shows India's forex reserves since the start of year 2013
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