Data the previous week showed that India’s foreign exchange reserves fell to $560 billion as of the week ended March 10, their lowest since early-December.
India’s foreign currency assets (FCA), the biggest component of the forex reserves, saw a rise of $10.49 billion to $505.34 billion. India’s gold reserves rose by $2.19 billion to $44.11 billion while SDRs and India’s reserve position in the IMFs saw an increase of $98 million and $29 million each.
At the start of the last year 2022, the overall forex reserves were at about $633 billion. Much of the decline can be attributed to RBI’s recent intervention and a rise in the cost of imported goods.
The rupee is currently hovering above 82 per US dollar. The rupee depreciated by 24 paise to close at 82.44 (provisional) against the US dollar on Friday weighed down by the strength of the American currency and massive selling in the domestic equity market.
Depleting forex reserves faced with the high cost of imported goods, and the ongoing monetary policy tightening by the US Federal Reserve triggered the currency’s depreciation. Investors tend to move towards stable markets, such as the US, for better and stable returns amid any tight monetary policy.
Typically, the RBI, from time to time, intervenes in the market through liquidity management, including through the selling of dollars, with a view to preventing a steep depreciation in the rupee.
The central bank intervenes in the spot and forwards market to prevent runaway moves in the rupee’s exchange rate against the dollar. The RBI has said in the past that changes in reserves also stem from valuation gains or losses.
