India's central bank is using up its foreign exchange reserves at a quicker pace than during the taper-tantrum period in 2013 as it tries to prevent an overshoot in the rupee, but a larger pool of reserves may allow it to support the currency for some more time, economists said.
The Reserve Bank of India has sold a net of $38.8 billion from its forex reserve between January and July this year, data released on Friday showed.
A net of $19 billion was sold in July alone, the most recent data available, and intervention remained heavy in August when the rupee fell below 80 against the the dollar, traders said.
The central bank's holdings of forward-priced dollars have decreased from $64 billion in April to $22 billion, along with its intervention in the spot market.
The so-called "taper tantrum," in which U.S. Treasury yields soared after the Federal Reserve announced it would decrease the pace of bond buybacks, placed pressure on developing nation currencies, especially the rupee, caused the RBI to sell a net of $14 billion in bonds from June to September of that year.
"The starting point of India's foreign reserves was at a much higher level in this cycle compared to the taper tantrum, providing a much thicker cushion to withstand global volatility/ shocks," said Radhika Rao, senior economist at DBS Bank.
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