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Forex reserves declined by 3 billion as RBI depends rupee from low records

source:iostime:2023-11-30 20:03:11

As the Reserve Bank of India intervened to preserve the rupee after the currency hit a new record low against a rampaging and two-decade high dollar, forex reserves fell by 3 billion, reaching a two-year low.  The country's import cover fell by $3 billion to $561.046 billion in the week ending August 26, compared to $564.053 billion in the week before that, according to the RBI's latest weekly supplementary statistical data.  The greatest drop since the financial crisis, the currency reserves have fallen for the fourth consecutive week and 21 of the last 27 weeks since Russia invaded Ukraine.  Since the conflict at the edge of Europe started in late February, India's FX cover has decreased by over $70 billion and by more than $80 billion from its peak in late October of the previous year. The widening trade deficit has not helped the country's forex reserves. The country's trade deficit more than doubled to $28.68 billion due to increased crude oil imports and a fall in exports for the first time in over 20 months, with foreign purchases of Indian goods and services contracting 1.15 per cent to $33 billion in August. The rupee's rapid and steep slide this year from around 74 per dollar before the Ukraine crisis to close to 80 per dollar at the moment has corresponded with the decline in foreign exchange reserves. Late in August, the rupee violated the crucial psychological level of 80 versus the dollar once more, falling to a new low of 80.15, but has since recovered with the help of the RBI. The dollar's sustained strength will ensure the rupee breaches the 80 levels, even though the RBI has tried to protect it, said Ritesh Agarwal, Head of Treasury at CTBC Bank, predicting that the rupee could be at 80.5 by the end of September. The central bank restated on Friday that inflation had peaked and might reach 5% in the second quarter of the following year, but this didn't inspire much confidence in the markets as it was overshadowed by concerns about the Fed's decision at the upcoming September meeting, which drove the dollar to a two-decade high. Almost all currencies have been constrained by the overbearing dollar as a result of the Fed's strong monetary policy stance. Fears have caused an investment exodus into dollar-denominated assets amid the global economic downturn and lack of evidence of easing down. According to Mr. Agarwal of CTBC Bank, supply-side concerns in India are what are causing the country's inflation problems, and those issues will only become worse as China locks down its cities and the war in Ukraine continues. But last week, while the rupee declined against the dollar, it closed up 0.1 per cent for the week, its first gain in three. Still, the country's forex war chest is at risk of further drawdowns as the RBI has made clear it will step in to limit wild gyrations in the rupee. According to IMF predictions, India has surpassed the UK to become the fifth-largest economy in the world, trailing only the US, China, Japan, and Germany.

Forex reserves declined by 3 billion as RBI depends rupee from low records