At $17.8 billion, the reserves fell the most in the week ended November 15, eclipsing the $15 billion retreat in the week of October 24, 2008, when the subprime sinkhole had swallowed global financial assets – and emerging market currencies – in the immediate aftermath of the Lehman Brothers mothballing. This time, too, the rupee declined 79 paise per dollar, or 1%, since the reserves hit a record of $704.9 billion on September 27.
“Our exchange rate policy is well articulated and has remained consistent over the years,” Reserve Bank of India (RBI) Governor Shaktikanta Das said at a recent media event. “Our exchange rate regime is market-determined and RBI does not target any level or band of the exchange rate.”
From record reserves on September 27, roughly coinciding with all-time highs for both the Nifty and the Sensex, the stockpile fell for the seventh consecutive week to a four-month low of $658 billion, with a cumulative contraction of $47 billion over the period.
“In this latest decline in reserves, the revaluation loss is estimated at $10.4 billion, while the RBI may have net sold dollars worth $7.2 billion,” said Gaura Sen Gupta, India economist, IDFC First Bank.
FPI Exits
The current trend of selling by foreign portfolio investors, resulting in a near 10% drop in headline equity indices over six weeks, mirrors the trend seen in 2008 during the peak of the global financial crisis. Foreign investors have net sold $4 billion in local stocks and bonds so far in November, after having withdrawn $11.7 billion in October, depository data showed.Portfolio flows are one of the major drivers of forex reserve movement. “The forex interventions are carried out to ensure an orderly movement of the exchange rate and to curb undue volatility, anchor market expectations and ensure overall financial stability,” Das had said at the event cited above. “It is important to note that the exchange is a barometer of the economy’s strength.”
