India’s forex reserves fall by $5 billion on rupee’s record lows and dollar strength
India’s foreign exchange reserves fell by $5 billion to its lowest in over a year as the dollar’s allure returned broadly and the rupee hit a series of all-time low levels, including breaching several key psychological levels.
The country’s forex reserves fell by $5.009 billion to $588.314 in the week ending July 1, its lowest since April last year, according to the Reserve Bank of India’s weekly statistical supplement data released on Friday.
In the prior week, the import cover had unexpectedly risen by $2.735 billion to $593.323, as the dollar stuttered against most major currencies.
That June 24 ending week’s data appeared to be a blip and had defied the broader emerging market economies’ trend of declining forex reserves driven by capital outflows as investors have sheltered into the safety of dollar-denominated assets on global recession concerns from inflation-fighting central banks.
However, after briefly taking a breather, the dollar has reigned supreme against almost all currencies, and foreign investors have fled other currency-denominated assets.
That was reflected in the country’s foreign currency assets (FCAs), which declined by $4.47 billion to $524.745 billion, and gold reserves fell by $504 million to $40.422 billion during the week ending July 1.
A significant portion of total reserves is FCAs, which are expressed in dollar terms as the greenback is considered the world’s reserve currency and takes into account the rise or fall in non-US currencies, such as the euro, sterling and yen, held in FX reserves.
What has not helped is the rupee hitting a series of record lows since breaching the 77-per-dollar rate for the first time ever in March, days after Russia invaded Ukraine and the rising cost of commodities, especially crude oil, on tight supply worries, has hurt the country’s trade and current account balances.
The RBI, in addition to intervention in the currency markets, announced new measures to increase the forex inflows and stem the rupee’s sharp losses.
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