MUMBAI: Foreign exchange reserves dipped $5.5 billion during the week ended on August 8, 2008, with the Reserve Bank of India (RBI) selling dollars to rein in the value of the rupee.
The monetary tightening measures undertaken by the central bank also have had their impact, as the money supply growth has declined, for the first time this fiscal, to below 20%. According to the latest RBI data, total foreign exchange reserves, including gold and SDR, dipped $5,464 million to $300 billion.

Foreign currency assets and reserves with the International Monetary Fund (IMF) dipped $5,456 million and $8 million, respectively. The value of gold and SDRs — the currency with IMF — remained unchanged during the week.

The regulator, after several years of buying dollars in the forex markets, has now started selling dollars. Though there were strong portfolio inflows, fuelling dollar mop-up by the central bank, oil importer demand for dollars, of late, has gone up sharply forcing the central bank to be net sellers of the greenback.

As result, total reserve with the central bank has dipped almost $10 billion since the beginning of the fiscal. The slowdown in reserves pile-up has also saw decline in money supply, to an extent. This is because, whenever the central bank sells dollars, it simultaneously impounds rupee funds from the system.

As a result of the monetary tightening, the annual growth in money supply (year-on-year, or Y-o-Y) has, for the first time in the recent months, has slipped below 20%. As per the latest RBI data, the Y-o-Y growth in money supply slipped to 19.6% as on August 1, from a high of close to 23% a few months ago.

The total stock of money in the system amounted to Rs 41,79, 900 crore as on August 1, up Rs 32,479 crore over the previous fortnight’s levels