India’s foreign exchange reserves got depleted by $5 billion in the week ended July 1, as foreign portfolio investors continued withdrawing investments from local equities leading to the rupee’s slide to below 79 per dollar for the first time in history.
The Reserve Bank of India responded to the rupee’s fall with steps to attract capital inflows on July 6, but the measures would take time to foreign currency demand-supply imbalance, economists said.
The reserves stood at $588.314 billion as on July 1, RBI data showed. Out of this, foreign currency assets stood at $524.745 billion while reserves held in gold were valued at $40.422 billion. The balance is kept with the International Monetary Fund as special drawing rights and reserves.
The fall in reserves now topped nearly $55 billion from its peak of $642.453 billion seen on September 3, last year. The central bank spent more than $46 billion to defend the currency since February.
This year till June 22, FPI outflows from India amounted to $28.5 billion, which were in line with the trend in other emerging markets amid growing concerns of a global economic slowdown.
Barclays said that the RBI measures to attract debt capital are fundamentally good, but may take some time to have an impact as the pressure on the rupee is primarily coming from the large sticky current account deficit, and not just capital outflows.
“The fundamental pressure on the foreign exchange may persist for some time, perhaps until there is a material correction in
commodity prices,” Rahul Bajoria, economist at Barclays, said earlier this week.