Foreign exchange reserves have fallen by more than $80 billion since the Ukraine crisis to their lowest level in 2 years

Foreign exchange reserves have fallen for six consecutive weeks to a near two-year low.

India’s foreign exchange reserves have plunged by more than $80 billion since the Ukraine crisis, falling more than $2 billion last week as the Reserve Bank of India sold dollars to keep the rupee from rising. cross the level of 80 per dollar.

The latest weekly statistical data from the RBI showed that foreign exchange reserves fell by $2.234 billion to $550.871 billion in the week ending September 9, from $553.105 billion the previous week, the level the lowest in nearly two years.

India’s import cover has fallen for six consecutive weeks and 23 out of 29 weeks since Russia invaded Ukraine in late February, reflecting the RBI’s constant drawdown on reserves to fight a surge in the US currency due to capital outflows into dollar-denominated assets.

Compared to the peak of the country’s foreign exchange reserves in October last year, the currency war chest has shrunk by more than $90 billion.

Despite a steady influx of foreign capital into the country’s markets, the widening current account deficit has failed to stem the decline in import coverage.

The rupiah has crashed dramatically this year, from around 74 against the greenback to a record low of over 80 to the dollar, with the RBI stepping in to manage the currency from extreme swings.

This was partly confirmed by the RBI’s latest monthly bulletin released on Friday, which showed the central bank sold $19.05 billion net in the foreign exchange spot market in July.

Rupee market movements suggest that the trend continued in August and this month.

The country’s declining foreign exchange reserves will likely be the theme for some time as the dollar continues to gain ground to new highs not seen in more than two decades against most major currencies.

The rupee had its worst week in five on Friday as the dollar hit a new high on larger Federal Reserve rate hike bets and the World Bank and International Monetary Fund warned of a slower economic growth in a context of soaring inflation.

A forex trader told Reuters that market participants feared the rupee was not allowed to weaken past 80 to the dollar and saw it as a level to protect.

Indian stocks slumped on Friday in a market bloodbath, with equity benchmarks erasing the week’s gains and extending losses for the third consecutive session, following a global selloff on looming recession risks from the broadest and most aggressive policy tightening in decades.

This suggests more RBI levies on reserves to protect the rupee from wild gyrations.

We expect the Rupee to trade with a negative bias against the strong Dollar and risk aversion in global markets. Global markets fell after IMF spokesman Gerry Rice raised concerns about a further slowdown in the global economy and said some countries are expected to slide into recession in 2023,” Anuj said. Choudhary, research analyst at Sharekhan by BNP Paribas, at PTI.

While the decline in foreign exchange reserves has been significant this year, the country has still managed to fare better than its peers in emerging markets, where import coverage has fallen to crisis levels.

A breakdown of the latest data from the RBI showed that India’s Foreign Currency Assets (FCA), which are the largest component of foreign exchange reserves, fell from $2.519 billion to $489.598 billion during the week ended Sept. 9 down $6.527 billion to $492.117. billion during the week preceding the reference period.

The value of appreciation or depreciation of non-US currencies such as the euro, pound and yen held in foreign exchange reserves is included in foreign currency assets, expressed in dollars.

But the value of gold reserves soared by $340 million to $38.644 billion.

While Special Drawing Rights (SDRs) decreased by $63 million to $17.719 billion, the country’s reserve position with the International Monetary Fund increased by $8 million to $4.91 billion. during the reference week.

Christi C. Elwood