Finance
The Reserve Bank of India’s (RBI) foreign exchange reserves fell for the first time in five weeks in the week ended December 16, falling to $563.50 billion.
The RBI’s reserves fell by $571 million due primarily to a drop in the central bank’s foreign currency assets, which fell by $500 million to $499.62 billion in the previous week, according to the most recent data.
The drop in reserves was most likely caused by the central bank resuming dollar sales to protect the rupee after a month of relative stability in the domestic currency.
The rupee fell 0.7% in the week ending December 16, falling close to the psychologically significant 83 per dollar mark. The all-time intraday low for the rupee is 83.29 per US dollar. So far in 2022, the rupee has fallen 10.29% against the US dollar.
According to market participants, the rupee’s weakness was exacerbated last week by a drop in dollar/rupee forward premiums to new 11-year lows, as importers rushed to lock in dollar purchases while exporters refrained from selling the greenback due to lower returns.
The forward premium rate, which is essentially the interest rate differential between India and the United States, represents importers’ hedging costs.
Following a drop of around $100 billion from late February to the end of September, the RBI’s foreign exchange reserves increased by $31.4 billion through early December. After Russia invaded Ukraine in late February, global investors reduced their exposure to emerging market assets and fled to the safety of the US dollar. The Federal Reserve’s aggressive monetary tightening has resulted in additional dollar strength.
The Reserve Bank of India stated earlier this month that foreign exchange reserves of $564.1 billion as of December 9 accounted for 9.2 months of projected imports for the current fiscal year. In September 2021, the level of reserves accounted for nearly 15 months of imports.
Source:BS
