Foreign Exchange reserves falling-a matter of concern

Our Foreign Exchange Reserves are aggressively falling. The reason being RBI supporting the rupee by selling foreign exchange. The pressure on rupee stem from the high current account deficit along-with withdrawal of FPI till July. Though, there is reversal of FPI withdrawals in August, the pressure on rupee continued with astronomical current account deficit. The foreign exchange reserves look comfortable at present, but the magnitude of fall from peak level is a serious concern, which is more than 10%. Time has come for the RBI to allow rupee depreciation to help exporters earn more and penalise the importers.

In the long-run, we have to identify the reasons for continued deficit and ways to combat it.