India’s foreign exchange reserves fell below $550 billion for the first time in nearly two years, marking the seventh straight week of decline, with the country’s import cover falling by nearly $30 billion during the period, Indian According to the data of the Reserve Bank.
RBI’s weekly statistical supplementary data shows that the country’s foreign exchange reserves fell by $5.219 billion to $545.652 billion for the week ended September 16, from $550.871 billion in the previous week.
Analysts believe that RBI’s intervention to prevent a sharp depreciation of the rupee against the dollar is the main reason for the fall in money market reserves, which is also partly attributable to exchange rate valuation adjustments.
Forex reserves have fallen for seven consecutive weeks, eroding a total of $28.223 billion during that period, as the RBI bailed out the rupee from a sharp fall and breached its record low of over 80 per dollar. Sell dollars.
But the factor that has driven the fall in the rupee and India’s import cover has been the exchange rate, the currency on the other side of the dollar.
Since Russia invades Ukraine, investors have flocked to dollar-denominated assets at flight-to-safety bets. The biggest consequence of the Ukraine crisis is a rise in commodity prices and, in turn, global inflation has reached several decades high.
This has propelled nearly every central bank into a tight race not seen in recent years, with the US Federal Reserve leading the pack even on bearish costs, pushing the dollar to multi-decade highs against most major currencies. Gave.
The rupee has fallen dramatically this year, to several record lows of around 74 to 80 per dollar before the Ukraine crisis, a level never seen before.
An unprecedented fall in listed currencies on the other side of the dollar pushed the RBI to push its forex reserves faster than the Fed’s taper tantrum in 2013.
The country’s import cover has dropped by about $86 billion since Russia’s incursion into Ukraine, which Moscow calls a special operation, and has fallen by about $97 billion from its peak in October last year.
To put that loss volume into context, it took India nearly a year to add about $60 billion to its forex war chest, the best pace of growth in recent years.
The central bank has had to spend some more of that amount in about six months to prevent the rupee from weakening completely, but only in a big way to limit and stabilize the depreciating rupee against the dollar.
If trading patterns this week are anything to go by, it is clear that the declining trend in forex reserves is likely to continue as the rupee crashed to new all-time lows this week, having previously stubbornly crossed 80 per dollar level. And then on Friday across the 81.
The sharp fall in the rupee on Thursday and Friday was similar to the way the RBI was defending the domestic currency through the Reserve Bank. The latest moves suggest that the central bank may be ready to allow the rupee to weaken.
A further analysis of RBI data showed that the shortfall in reserves in the week ended September 16 was due to a fall in foreign currency assets (FCAs), which constituted a significant part of the total reserves.
FCAs, which are expressed in dollar terms, take into account the effect of appreciation or depreciation of non-US currencies held in foreign exchange reserves such as the euro, pound and yen. FCA declined by $4.698 billion to $484.901 billion during the week under review.
The data showed that the value of gold reserves fell by $458 million to $38.186 billion.
According to the RBI, special drawing rights (SDRs) declined by $32 million to $17.686 billion and the country’s reserve position with the IMF fell by $31 million to $4.88 billion in the reporting week.