The Reserve Bank of India (RBI) on Tuesday said that it had intervened in the domestic foreign exchange market when the rupee's foreign exchange value had gone down against the U.S. dollar in the half-yearly period ended September 30, 2011.
Foreign exchange reserves stood at $304.8 billion as at end-March, 2011. It increased to a peak of $322 billion as at end-August, 2011. Thereafter, it came down to $311.5 billion at the end of September 2011. “The main reasons for the decline are the revaluation effect and intervention in the domestic foreign exchange market,” RBI said in its half-yearly report on Management of Foreign Exchange Reserves. Till August 2011 (calendar year) the rupee was quoting in the 44-45 range to the dollar. However, it started falling sharply in September and moved above the 52-level in November last year. There were market rumours on central bank's intervention by pumping dollars into the market. The rupee hit an all-time low of 52.73 in November. The RBI always maintained that it would intervene whenever necessary.
RBI's intervention helped improve rupee's foreign exchange value against other currencies. In this calendar year, the rupee strengthened against the dollar and now it is hovering around 49 a dollar. The rupee ended at 49.07 on Tuesday.
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Although the U.S. dollar and the euro are intervention currencies and foreign currency assets are maintained in major currencies such as U.S. dollar, euro, British pound sterling and Japanese yen, foreign exchange reserves are denominated and expressed in U.S. dollar only.
Widening trade deficit, high inflation and eurozone debt issues have been attributed to the fall in rupee value against the dollar. India's net International Investment Position, which is a summary record of the stock of country's external financial assets and liabilities, as at end September 2011 was negative at $224.9 billion.
Gold reserves
The Reserve Bank held 557.75 tonnes of gold as on September 30, 2011. Of these, 265.49 tonnes are held abroad in deposits / safe custody with the Bank of England and the Bank for International Settlements.