India’s foreign exchange (FX) reserves fell below $600 billion for the first time in a year, weighed by continued capital outflows and a weak rupee driven by the dollar’s sharp rise in recent times. month.
The latest data for the week ending April 29 from the Reserve Bank of India (RBI) released on Friday showed the country’s foreign exchange reserves fell by $2.695 billion to $597.728 billion, marking the eighth consecutive week of decrease. The last time the country’s import coverage fell below the $600 billion mark was during the week ending May 28, 2021.
Last week’s data was also the lowest since late April last year, when the country was battling its worst wave of the coronavirus pandemic. At the time, hospitals across the country were scrambling for beds and oxygen in response to a deadly second wave of infections; the World Health Organization (WHO) had said in a report that India accounted for almost half of the world’s reported coronavirus cases and a quarter of the deaths during this period.
This year, however, the fallout from the Russian-Ukrainian war has weighed on global supply chains, leading to runaway inflation and, in turn, forcing major central banks to adopt a tightening policy.
India’s foreign exchange reserves have shrunk by almost $34 billion, or about 5.4%, since Russia invaded Ukraine on Feb. 24. This import coverage wiped out in just two months is roughly what the country took to build in a year.
The fall in foreign exchange reserves began during the week ending March 11, when the rupee hit all-time lows.
The weakness of the Indian currency was largely due to the sharp rise in the greenback, driven by expectations of a very aggressive monetary policy from the US Federal Reserve and the intervention of the RBI through sales in dollars by Indian public banks.
While import cover is still healthy at nearly $600 billion, it has fallen to its lowest level in a year, and the rupee’s latest trade moves point to further erosion of the country’s war chest.
Indeed, the rupiah reversed four sessions of gains and crashed to 76.90 on Friday, very close to its all-time low, with analysts suggesting the RBI helped the rupiah drop to new record lows.
According to Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, the Rupee fell as the overall strength of the Dollar continued to weigh on major crosses.
“Earlier in the week, the rupiah rose after the RBI decided to hike rates by 40bps and raised the CRR by 50bps, Mr Somaiya told PTI. currency were constrained after the Federal Reserve raised rates too much and maintained a hawkish stance, he added.
Sriram Iyer, senior research analyst at Reliance Securities, told PTI that dollar selling by public banks, suspected on behalf of the central bank, capped further rupee weakness.
The Indian rupee fell against the US dollar on Friday and depreciated this week as risk appetite weakened amid growing inflation concerns that could trigger more aggressive rate hikes. from the world’s central banks,” he added.