Finance
The Reserve Bank of India’s foreign exchange reserves fell by $8.3 billion to $566.95 billion in the week ending February 10, the largest weekly drop since April 1, 2022. The reserves have dropped to their lowest point since January 6, 2023.
For the second week in a row, the drop was primarily due to a drop in foreign currency assets, which fell $7.1 billion to $500.59 billion.
The rupee fell 0.8% in the week ended February 10 to close at 82.51 per dollar, as unexpectedly strong US job data fueled fears that the Federal Reserve would raise interest rates for a longer period than previously anticipated.
Higher US interest rates cause the dollar to strengthen, putting pressure on emerging market currencies like the rupee.
More recent data sets in the US, including higher-than-expected inflation in January, have fueled fears that the Fed will continue to tighten policy for an extended period of time. Since March 2022, the Fed has raised interest rates by 450 basis points, causing the US dollar to surge.
According to dealers, the RBI has likely intervened in the non-deliverable forwards market through dollar sales over the past week to reduce excessive volatility in the exchange rate.
The drop in the last two weeks follows a recent surge in the central bank’s reserves. Following a $100 billion decline in reserves from February to September 2022, the RBI has been replenishing its foreign exchange reserves over the last three months.
From June to October 2022, the RBI was a net seller of US dollars in the currency market as it sought to reduce excessive volatility in the rupee’s exchange rate amid the Ukraine war and aggressive Fed rate hikes. Since September 30, foreign exchange reserves have increased by $28.9 billion to $561.6 billion as of January 6.
As of January 27, 2023, reserves totaling $576.8 billion covered 9.4 months of projected imports for the current financial year, the RBI staff said in the central bank’s February Bulletin.
Source:BS
