Attempts to arrest the fall in the rupee's value, coupled with massive outflows of foreign funds from equity and bond markets reduced India's foreign exchange reserves (Forex) kitty by $1.726 billion, experts said on Saturday.
According to the Reserve Bank of India's (RBI) weekly statistical supplement, the overall Forex reserves stood at $347.20 billion for the week ended January 15.
The foreign reserves' kitty had plunged by $1.43 billion to $348.93 billion for the week ended January 8.
Analysts attributed the depletion to the central bank's attempts to arrest the fall in the rupee's value.
"The reduction in the Forex reserves is primarily caused due to RBI's dollar sales. The apex bank has been selling dollars to stabilise the rupee," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
According to Banerjee, the dollar sales even wiped out the foreign currency gains made on the back of a weak US dollar during the period under review.
"The dollar index had declined by 0.50 percent in the week under review. The reserves should have risen due to the weak dollar index, instead it declined," Banerjee added.
In addition, the foreign currency assets (FCAs) which is the largest component of India's Forex reserves declined by $1.723 billion to $324.67 billion in the week under review.
Apart from the US dollar, the FCAs consist of nearly 20-30 percent of major non-US dollar global currencies, securities and bonds.
Other market observers alleged greater dollar sales by the RBI in the 'Forwards' and 'Futures' markets.
"Currency revaluation in that week should have led to an increase in the total reserves. However, the reduction implies that there might have been a greater amount of dollar sales in other markets," a currency analyst told IANS from New Delhi.
The analyst elaborated that in the medium term, the RBI is seen comfortable with the rupee ranging anywhere between 67-67.60 to a US dollar.
Anything beyond or below this limit provokes the central bank to intervene by either buying or selling the greenback.
Lately, the rupee has been on a downward trajectory due to heavy outflows of foreign funds from the equity and debt markets.
On a weekly basis, the rupee weakened by 96 paise to 67.60 (January 15) to a US dollar from its previous close of 66.64 to a greenback (January 8).
The National Securities Depository Limited (NSDL) figures showed that the FPIs were net sellers during the week ended January 15 2016. They divested Rs.3,458.33 crore or $368.3 million in the equity and debt markets from January 11-15.
Similarly, the data with stock exchanges showed that the FPIs sold stocks worth Rs.4,281.89 crore in the week under review.
However, the country's gold reserves were stagnant at $17.24 billion.
The gold reserves had diminished by $303.7 million to $17.24 billion during the week ended January 1.
Furthermore, the special drawing rights (SDRs) were lower by $2.4 million at $3.99 billion.
Similarly, the country's reserve position with the International Monetary Fund (IMF) slipped. It inched down by $0.7 million to $1.29 billion.