India’s forex reserves had dropped by $5.681 billion to $561.267 billion for the week ended February 17.
In October 2021, the country’s forex kitty reached an all-time high of $ 645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments.
For the week ended February 24, the foreign currency assets, a major component of the reserves, decreased by $166 million to $495.906 billion, according to the Weekly Statistical Supplement released by the RBI.
Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
Gold reserves decreased for the fourth week running and were $66 million down to $41.751 billion, the RBI said.
The Special Drawing Rights (SDRs) were also down by $80 million to $18.19 billion, the apex bank said.The country’s reserve position with the IMF was down by $12 million to $5.098 billion in the reporting week, the apex bank data showed.
How is the Rupee performing?
The rupee appreciated by 63 paise to close at a one-month high of 81.97 (provisional) against the US dollar on Friday, as fresh foreign fund inflows and positive domestic equities supported investor sentiments.
Forex traders said positive PMI services data also boosted investor sentiments.
The Indian rupee touched a one-month high on hot services PMI data, said Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas.
The Indian services sector expanded at the strongest rate in 12 years in February supported by favourable demand conditions and new business gains, a monthly survey said on Friday. The seasonally adjusted S&P Global India Services PMI Business Activity Index rose from 57.2 in January to 59.4 in February — its highest level in 12 years.
“We expect the rupee to trade with a slight positive bias on improved global risk sentiments and fresh FII inflows. Weak crude oil prices may also support the domestic currency,” Choudhary said.
However, any pullback in the US dollar amid rising expectations of hawkish Federal Reserve and concerns over slowdown in India’s GDP growth rate may cap the upside and weigh on rupee at higher levels, he added.
The Indian rupee will remain at its current level three months from now and gain only marginally by the end of February 2024, barely recouping any of its losses from last year, a Reuters poll of foreign exchange strategists found.
The rupee has steadied after falling more than 10% in 2022, when it was one of the worst performing Asian currencies. It is expected to trade at 82.54 per dollar at the end of May, according to the median forecast in a Feb. 28-March 2 Reuters survey of 34 respondents.
In the near-term, much will depend on interest rate differentials, mainly driven by the U.S. dollar. The Reserve Bank of India (RBI) is nearing the end of its tightening campaign with one last 25 basis point hike expected in April to take its main interest rate to 6.75%.
(With inputs from Reuters)
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