RBI’s dollar sale depletes forex kitty by $4b to $296b...

Foreign exchange (forex) reserves have dipped below the $300-billion mark after hitting that level six months ago. The fall in reserves comes on the back of a selling-spree to meet the growing dollar demand, especially from state-owned oil companies which need to buy crude from international markets.

According to the latest Reserve Bank of India (RBI) data, total foreign exchange reserves with the central bank, including gold and SDR, fell by $3.8 billion to $296.2 billion. While foreign currency assets dipped $3,785 million, SDR — the currency with the IMF— and reserves with the IMF were down by $7 million and $8 million, respectively.

The central bank’s foreign exchange pile has dipped by over $13 billion since end-March this year, as it has been selling dollars to meet demand from oil importers. But in the past couple of weeks, the forex market has witnessed heavy dollar demand from corporates and foreign brokerage firms, according to a senior forex dealer with a private bank. The dealer said that the demand was also fuelled by overseas foreign borrowing repayment obligations and from foreign portfolio investors who bought dollars to repatriate their earnings. Foreign banks also bought dollars in the spot market while simultaneously selling them on the overseas non-deliverable forwards (NDF) market — where currencies are traded in the offshore market — as part of an attempt to arbitrage on the rate differential in two markets, he added. The RBI data also showed that on the domestic front, the government has not resorted to ways and means advances (WMA) — a temporary overdraft to meet its revenue mismatches. Rather it is parking its unspent revenue with the central bank. As on August 15, the unspent revenue parked with the central bank touched Rs 9,095 crore. By parking money with RBI, though it reduces RBI credit to the government, it effectively blocks rupee liquidity in the market. This is ironical as the financial market players are facing tight cash conditions, forcing the central bank to infuse liquidity. It pumped in Rs 25,000 crore a day on an average during the week.