India’s foreign exchange (forex) reserves declined by $9.646 billion to $622.275 billion in the week ended March 11. The sharpest decline in nearly two years. As the Reserve Bank of India (RBI) heavily sold dollars to prevent the slide in the value of the rupee.
According to the RBI`s weekly statistical supplement, the foreign currency assets, which is the biggest component of the forex reserves. It is slumped by $11.108 billion to $554.359 billion during the week under review.
Expressed in US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-dollar currencies like Euro, UK`s Pound Sterling, and Japanese Yen held in the foreign exchange reserves.
This sharp decline in the country`s foreign currency assets coincides with the week during which the rupee hit an all-time low. The Indian rupee plunged to a record low of 77.02 against a US dollar on March 7.
Gold reserves increased by $1.522 billion to $43.842 billion in the reporting week, the data showed. The RBI said that the special drawing rights (SDRs) with the International Monetary Fund (IMF) dipped by $53 million to $18.928 billion.
CommentsThe country’s reserve position with the IMF decreased by $7 million to $5.146 billion in the latest week.
Why have the reserves declined?
When the rupee fell below the 77 levels after the Russia-Ukraine war intensified and crude oil prices flared up. The Reserve Bank of India (RBI) sold dollars to prevent a further slide in value. The RBI’s intervention — dollar sales through PSU banks — started when the rupee crossed the 76-level and headed to the 77-mark.
The RBI sold $5.135 billion to banks on March 8 and simultaneously agreed to buy back the dollars at the end of the swap-settlement period. When the central bank sells dollars, it takes out an equivalent amount in rupees, thus reducing the rupee liquidity in the system.
Dollar inflow into the market strengthened the rupee which hit the 77-mark against the dollar on March 8. On March 17, the rupee spurted by 41 paise to close at 75.80/81 against the US dollar on Thursday (March 17).
Rise Before Fall
India’s foreign exchange reserves increased by $394 million to $631.92 billion in the week that ended on March 4. It is not far away from its all-time high of $642.453 billion, according to the Reserve Bank data released on Friday.
During the reporting week that ended on March 4, the gain in the reserves was due to a rise in the foreign currency assets (FCA). A significant component of the overall reserves showed the Reserve Bank of India’s (RBI) weekly data.
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.
It touched a lifetime high of $642.453 billion in the week ended September 3, 2021.
