India's foreign exchange reserves declined by as much as $10.5 billion in the one-month ending September, 2011 mainly due to the impact of the central bank's policy to intervene in the currency market to contain volatility.
"The [forex] reserves stood at $304.8 billion as at end-March, 2011. It increased to the peak level of $322.0 billion as at end-August, 2011. Thereafter, it came down to $311.5 billion at the end of September 2011", RBI said in its report on management of foreign exchange reserves.
The movements in the Foreign Currency Assets (FCA), the report said, "occur mainly on purchases and sales of foreign exchange by the RBI in the foreign exchange market in India, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the central government and the effects of revaluation of assets".
On the net basis, during the six-month period ending September 2011, the foreign exchange reserves went up by $6.7 billion to $311.5 billion.
The decision of the RBI to intervene in the foreign exchange market to arrest the declining value of rupee too led to decline in forex reserves.
The value of the India currency which had declined to over Rs 53 to a dollar, has now stabilised at below Rs 50.
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The revaluation refers to the impact of exchange rate movement of international currencies vis-a-vis US dollar on country's foreign exchange reserves.
Although both US dollar and Euro are intervention currencies, the Foreign Currency Assets (FCA) are maintained in several major currencies like US dollar, Euro, Pound Sterling, Japanese Yen but expressed in US dollars.
Reflecting deterioration in the adequacy of forex reserves, the report further said that at the end of September 2011, the import cover provided by the reserves, "declined to 8.5 months from 9.6 months at end-March 2011."
Also, it added, the ratio of short-term debt to the foreign exchange reserves which was 21.3% at end-March 2011 increased to 23.0% at end-September 2011.
The ratio of volatile capital flows (defined to include cumulative portfolio inflows and short-term debt) to the reserves increased from 67.3% as at end-March 2011 to 68.3% as at end-September 2011, it added.