The role rupee trade can play in external front stability
That our forex reserves fell more on account of asset revaluation than dollar sales by RBI should soften charges of excessive intervention but India remains vulnerable on the external front.
One interesting point made in the Reserve Bank of India’s (RBI) credit policy was that 67% of the decline in foreign exchange reserves was due to “valuation changes". Simply put, this means that our forex reserves are held in various assets (cash or mainly bonds) like euros, special drawing rights (SDR), gold, yen, pounds and so on. With the dollar strengthening, the value of our overall vault has diminished. This is both good and bad news.