MUMBAI: With the rupee hitting a new low of 84.88 to the dollar last week, the Reserve Bank of India continued selling the greenback, resulting in a further decline in forex reserves by $3.23 billion, bringing them to $654.86 billion for the week ending December 6.
After eight weeks of steep declines, the reserves had gained marginally in the previous reporting week. According to the weekly statistical supplement released by the central bank on Friday, foreign exchange reserves declined by $3.23 billion to $654.86 billion during the week under review.
In the preceding eight weeks, the reserves had lost by over $55 billion. The RBI said the drop was mainly due to a fall in foreign currency assets, which are the largest component of the forex assets and fell by $3.22 billion to $565.62 billion during the reporting week. The reserves had peaked at $704.8 billion in the week to September 27. And since then it has been on a declining path as the rupee came under severe stress. Gold reserves remained relatively stable, while SDRs and the IMF reserve position saw minor increases.
Gold reserves, however, remained relatively stable, showing a marginal decline of $43 million to $66.94 billion. Special drawing rights saw a slight increase of $25 million, reaching $1.80 billion, while the reserve position with the International Monetary Fund rising by $12 million to $4.27 billion.
Meanwhile, the rupee recovered 10 paise to end at 84.78 on Friday, December 13. It was partly due to the late rally in the market with benchmarks gaining 1 percent each.
Related video: Fed to Cut Once More Before Slowing Pace in 2025: Economists (WION) After cutting rates for two consecutive times, Federal Reserve officials According to analysts the dollar has been strengthening after the US inflation numbers came on expected lines, raising hopes for an interest rate cut by the Federal Reserve in the upcoming policy review next week. The rupee rebounded from its all-time low level and settled with a gain of 10 paise at 84.78 against the dollar, buoyed by a strong recovery in domestic equity markets and easing inflation data.
At the interbank foreign exchange, the rupee opened at 84.87 and touched the intra-day high of 84.77 and the unit finally ended at 84.78, logging a gain of 10 paise from its previous closing level.
On Thursday (December 12), the rupee had fallen by 5 paise to close at the lowest-ever level of 84.88. The previous record low closing level was recorded on December 9, when the unit settled 20 paise lower at 84.86. The rupee strengthened partly due to the fall inflation which showed that retail price index eased in November to 5.48 percent from 6.21 in the previous month.
This has strengthened the hope for an easing cycle from the next policy review in February. Also, barring the day the new RBI governor Sanjay Malhotra assumed office on December 11, the rate cut hope has been building up in February.
“We expect the rupee to trade with a negative bias on strong dollar and elevated crude prices. FII outflows may also pressure the rupee. However, positive equities and better-than-expected macroeconomic data may support the rupee at lower levels. The dollar-rupee spot price is expected to trade in a range of 84.65-85.05,” Anuj Choudhary of Mirae Asset said.
