Reserves fall as RBI keeps hands off rupee

The country's foreign exchange reserves for the week ended December 10 slipped by over a billion dollars to $129.69 billion, indicating non intervention of the Reserve Bank of India (RBI) to suck out the dollars from the banking system for a week.

This is as against a growth in reserves to $130 billion for week ended December 3, when the figure went up by a whopping $3.79 billion, the highest accretion in a week. The decline comes at a time when the equity market has seen an FII inflows of $1.52 billion.

Observers said reserves have gone down as the central bank refrained from buying dollars in the foreign exchange market, which led to the appreciation of the rupee.

The spot rupee during December 6-10 declined from 43.65 to 44.22 because dollar supplies matched demand from importers and the non-deliverable forwards market.

In the next week, the RBI used the market stabilisation scheme after postponing it for some time to suck out Rs 4,000 crore "" when the surplus in the money market was Rs 22,000 crore. Part of this liquidity could be because banks would have converted dollars into rupees for their portfolio investor clients.

Also, FIIs who bought excess corporate bonds in the wake of easier norms for corporate debt had to frantically offload the papers, adding to the liquidity.

Two days after relaxing the norms for corporate debt market, the capital markets watchdog Sebi reimposed the ceiling of $500 million.

A hands off RBI helped to maintain a low inflation rate, while the strong rupee aided import payments, especially for oil.