(MENAFN- Khaleej Times) Strengthening dollar, crude oil and commodity prices, coupled with a downfall in foreign investors' sentiment, has led to a slowdown in the growth of India's foreign exchange reserves.
According to data furnished by the Reserve Bank of India (RBI) in its weekly statistical supplement, India's foreign exchange reserves grew by only $239.4 million and stood at $352.71 billion in the week ended on June 5.
The reserves had grown by $917.5 million in the week before to $352.47 billion. For the week ended on May 22, the foreign exchange reserves had fallen by $2.31 billion to $351.55 billion after four successive weeks of gains.
The country's foreign exchange reserves had touched a record high of $353.87 billion for the week ended on May 15 having increased by $1.74 billion over the previous week.
Foreign exchange reserves have increased by close to $30 billion since January as overseas investors, buoyed by the hope of economic revival, poured in dollars in the local debt and equities markets.
"The slowdown in the reserves is due to the dollar rallying and the rupee falling. Though the reserve bank is closely monitoring the situation, so that the rupee does not goes into a free fall, global cues are adding to the volatility," Anindya Banerjee, senior manager for currency derivatives with Kotak Securities told IANS.
"The hawkish language used by the Reserve Bank in its monetary policy review on June 2 and the less-than-expected cut in the key lending rates also subdued the foreign investors' sentiments," Banerjee said.
According to Banerjee, in the last 6 weeks the FPIs (Foreign Portfolio Investors) have sold stocks worth nearly $3 billion. They had picked-up scrip worth $2.4 billion in April.
Banerjee also pointed-out that the RBI has been selling dollars to stabilise the rupee value in the forward trading markets since the last many weeks.
"The RBI is selling dollars, whenever the rupee crosses the Rs64 level mark and buying when it falls below Rs63. This is a very short range. However, the RBI seems to be comfortable with the rupee ranging anywhere between Rs62-Rs.64 per dollar," Banerjee said.
Some estimates point-out that the RBI may have sold nearly $10 billion in the forward trading markets to arrest the slide in the rupee value which currently stood at Rs64.10 per dollar.
The analysts elaborated that the RBI Governor Raghuram Rajan is monitoring the rupee movement closely, so that it does not shows any downward trend that might affect the speculators to go into a selling frenzy.
"The Indian financial markets are more integrated to the world markets than the whole of the Indian economy. This is why even the slightest signs of instability anywhere cause the rupee to spike above Rs64 per dollar," he said.
Recently the reserves were put under pressure, as the signs of improving global oil demand is evident. Oil prices were last seen trading at $64.49 compared to the previous close of $62.87.
The RBI is continuing to build-up its reserves to counter any future financial shocks and slide in rupee value like the one which was witnessed in 2008 and June, 2013.
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