India's forex reserves fell to a nine-month low despite a temporary reprieve to the rupee which, if inflows don't revive, may resume its slide through June 2012 as more than a $100 billion of debt repayments begin to unfold.

Currency strategists HSBC to CLSA are forecasting the Indian rupee to trade at 58 to the dollar in the next few months, about 14% lower than its close Friday, as the demand for dollars rise. Although the US Federal Reserve cut rates on dollar credit lines to its counterparts, it could address the liquidity issue, and not the fundamental weakness.

The Reserve Bank of India is reluctant to intervene, except to prevent volatility. Despite not targeting a level for the currency against the greenback, the foreign exchange reserves have plunged to $304 billion on November 25, a level not seen since March. In just about four weeks, it is down $16 billion.

The Indian rupee ended 0.5% higher at 51.20 to the US dollar on Friday. It touched a low of 52.38 on November 23 and is down 14.5% this year. But the appreciation may turn out to be temporary as sentiment got a boost with bids for permits to buy bonds for overseas investors surpassing the targeted $10 billion. With nearly Rs 50,000 crore likely to flow in the next few months, the rupee gained, said dealers.

"With a view to conserving foreign exchange reserves, sustained intervention in the spot market might be difficult for the RBI,'' said Saugata Bhattacharya, chief economist, Axis Bank. "They can sell dollars forward, but, given the constraints on capital convertibility, this indirect intervention would probably be less effective." The fear of a slide comes from the fact that external debt worth 43.5% of total foreexreserves is due for repayment in the 12 months to June '12. It was 28.5% in June '08.

"In a normal situation outstanding external debt would easily be rolled over, but the current volatile situation poses some difficulties", said C Rangarajan, chairman of the prime ministers economic advisory council and a former central bank governor who faced a far worse currency markets.

Total foreign exchange reserves, including gold and Special Drawing Rights, or SDR - the non-physical, but book entry currency, of the International Monetary Fund, was at $304 billion down $ 4.2 billion from a week ago. (Economic Times)