Indian reserves fall on intervention

India's foreign exchange reserves fell by $1.53 billion in the week to July 23, as the central bank dipped into its war chest to supply scarce dollars and aggressively support a beleaguered rupee, analysts said.
Data released on Saturday showed foreign exchange reserves in Asia's fourth-largest economy fell to $119.58 billion on July 23 from a record high $121.11 billion a week.
"The fall in reserves definitely reflects the large-scale dollar-selling intervention by the RBI (Reserve Bank of India) that week to calm a panicky market as the rupee depreciated to a year low," said Subhead Rao, economist at Bank of Abroad.
"While there could have been some revaluation losses in that period, the reserves used by the central bank to keep the market well supplied with dollars and prevent the rupee from falling too rapidly must account for the major portion of the fall."
Despite the latest week's fall, India's reserves are still up nearly $18 billion in 2004, making it Asia's sixth-largest stockpile. The week's decline was almost entirely in the foreign currency assets portion of the reserves, which fell by $1.52 billion.
Reserves also include gold, special drawing rights and India's Reserve Trance Position in the International Monetary Fund.
The RBI said the foreign currency assets expressed in US dollar terms included the effect of appreciation or depreciation of other currencies held in its reserves such as the euro, pound sterling and yen.
The euro depreciated by nearly 3 percent against the dollar in the week ended July 23, after the Federal Reserve chief's upbeat assessment of the US economy bolstered expectations of an interest rate hike, spurring a greenback rally.
The Indian rupee, which is only partially convertible, lost 0.77 percent against the US currency that week to dip to a near 13-month closing low.
The Indian currency has been under intense pressure in the past two months as foreign capital inflows have slowed on uncertainty over the pace of economic reforms after a Communist-backed government won national elections.
The rupee has lost 6.2 percent since scaling a 51-month closing peak of 43.5450/5500 per dollar on April 7.
Foreign funds' purchases of local assets, which had been a major factor in helping the rupee appreciate until the April peak, have fallen sharply since then.
Although foreign funds' purchases have turned positive in July, at $198.4 million of net investments they are still less than a fifth of the $1 billion average in the first four months of 2004.
That has affected the rupee, which at Friday's close of 46.4350/4550 per dollar was down 1.83 percent against the dollar in 2004, following a record 5.2 percent gain last year.