It has now been six weeks in a row that foreign exchange reserves have hit a new all-time low.
The Reserve Bank of India sold dollars to help the rupee cross the 80-to-dollar threshold, resulting in a reduction in India's foreign exchange assets of more than $80 billion since the Ukraine crisis. This includes more than $2 billion in the last week.
During the week ending September 9, the RBI reported that foreign exchange reserves fell to $550.871 billion, a fall of $2.234 billion from the previous week's total of $553.105 billion. This marked the lowest level of foreign exchange reserves in almost two years.
India's import coverage has dropped for six consecutive weeks and 23 of the last 29 weeks since Russia invaded Ukraine in late February. This is a result of the Reserve Bank of India (RBI) withdrawing reserves to combat a spike in the US currency caused by capital outflows to dollar-denominated assets.
Since late October, when they were at their highest, the country's foreign exchange reserves have dropped by more than $90 billion.
Even though there has been a steady influx of foreign capital into the country's markets to attempt and offset the widening current account deficit, the deficit has not been able to prevent the deterioration of import coverage.
The Reserve Bank of India (RBI) stepped in to stabilize the rupee after it had fallen drastically this year, from over $74 to a weak record high of over $80 against the dollar.
Some evidence for this comes from the Reserve Bank of India's (RBI) most recent monthly bulletin, which stated on Friday that the RBI sold a net $19.05 billion in the spot currency market in July.
According to the behavior of the Rupee's market in August and this month, this trend has continued.
The decline in the country's foreign exchange reserves is likely to stay front and center for some time as the dollar continues to soar to highs not seen in over two decades against most major currencies.
As the dollar reached a record high this week, the value of the rupee plummeted for the first time in five weeks due to speculation that the Federal Reserve will raise interest rates and due to warnings from the World Bank and the International Monetary Fund about slow economic growth and rising inflation.
Reuters cited a currency broker as saying that traders were wary of going above 80 rupees to the dollar.
After a worldwide sell-off brought on by the prospect of recession brought on by the broadest and most aggressive policy tightening in decades, Indian shares plunged into a market slaughter on Friday, erasing the week's gains and extending their losses for a third consecutive session.
That means the RBI will keep dipping into reserves to protect the rupee from wild swings in value.
We expect the strong dollar and general risk aversion to have a negative effect on the trading behavior of the rupee. Markets throughout the world dropped as IMF spokesman Gerry Rice voiced concern over a further slowdown in the global economy and claimed that some countries are expected to face recession by 2023, according to a report by PTI citing a research analyst at Sharekhan by BNP Paribas.
The country has done better than its peers in emerging countries, where import coverage has approached crisis levels despite a significant fall in foreign exchange reserves this year.
The Reserve Bank of India reported that in the week ending September, India's foreign exchange assets (FCA), which make up the largest share of the country's foreign exchange reserves, fell by $2.519 billion to $489.598 billion, from $6.527 billion to $492.117 billion the previous week.
Dollar-denominated foreign currency assets reflect the increase or decrease in value of foreign currencies like the euro, pound, and yen held in foreign exchange reserves.
A $340,000,000 rise brought the total value of gold reserves to $38,644,000,000.
For the week covered by this report, SDRs fell $63 million to $17.719 billion, while the country's reserve position at the IMF rose $8 million to $4.91 billion.
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