MUMBAI: Foreign exchange reserves fell to a 15-month low despite flow of US dollars from non-resident Indians and foreign funds to buy debt securities, taking import cover to about eight-and-a-half months from as high as 15 months before the 2008 credit crisis.
The intervention, or sale of dollars, by the Reserve Bank of India to stabilise the Indian rupee against the US dollar and a fall in the value of its other reserves such as Euro and gold could have also added to the fall in reserves, analysts said.
Reserves dipped $3.2 billion in early January to $293.5 billion as on January 6. Foreign currency assets comprising dollars, British pounds and euro, among others, dipped while the value of gold in reserves rose $1.1 billion.
"Besides RBI intervention, the dip in reserves could also be due to revaluation of euro in reserves," said Upasana Bharadwaj, chief economist, ING Vysya Bank. "Looking at it from a slightly longer-term perspective, reduction in gold prices could also have had a bearing on our reserves."
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Foreign exchange reserves have fallen for eight straight weeks and 8.2% since the October peak of $320 billion as international investors pulled out funds and import demand surged.
The central bank also sold about $5 billion in markets to arrest the slide of the rupee, which fell 8% in the last quarter to become the worst performing currency in Asia.
Special drawing rights, or SDRs - the reserve currency with the International Monetary Fund - and the reserve capital with the IMF dipped $14.8 million and $9.1 million, respectively, data released by the Reserve Bank of India showed.
"If you take a two-three months' view, RBI intervention has been around $5 billion between September and November,'' said Samiran Chakraborty, head, India research, Standard Chartered Bank. "So, one would think the dip in reserves could be due to valuations and not just due to intervention."
A further dip in reserves could make India's external sector more vulnerable. Currently, the reserves are adequate to finance about eight-and-a-half months' imports, down from about 15 months before the crisis of 2008. Besides, short-term debt by residual maturity of less than a year is pegged at $137.3 billion as of end June 2011.
"Despite a relatively strong growth story, the marginal reserve drawdown expected in FY'12 and FY'13 is likely to limit the bounceback in the currency, currently at Rs 53 to a dollar level," said Citi's Rohini Malkani in a report last week.
"Risk-off environments normally result in lower flows to countries with twin deficits. Despite our estimates on capital flows remaining broadly unchanged at $62 billion in FY'12 and $73 billion in FY'13, our forecasts of a widening current account deficit would likely result in a marginal drawdown in reserves to the tune of $2bn versus an accretion of $4bn expected earlier," it said.
Source : economictimes.indiatimes.com