Foreign exchange reserves in Asia’s third-largest economy rose $6.56 billion to $531.08 billion for the week ending October 28, according to data released today by the Reserve Bank. of India.
However, spot foreign exchange reserves are still down sharply from $607 billion at the end of March and depleted by $111.37 billion from the record high of $642.45 billion reached on September 3 this year. last.
Foreign exchange reserves were depleted for 11 out of 13 weeks. The other lucky time was for the week ended October 7, when gains in gold reserves had boosted reserves by change of only $204 million.
Foreign exchange reserves had fallen to their lowest level since July 2020 at $524.52 billion for the week ending October 21.
The gain in foreign exchange reserves can be attributed to an increase in foreign currency assets (FCA), which is a major component of overall reserves, according to the weekly statistical supplement released by RBI.
Foreign currency assets increased by $5.77 billion to $470.85 billion for the week ending October 28. Gold reserves increased by $556 million to $37.762 billion.
Expressed in dollars, the FCA consists of the effect of the appreciation or depreciation of non-US units such as the euro, the pound and the yen held in foreign exchange reserves.
For the week ended October 28, the rupee closed with its first weekly gain in seven weeks after gaining 0.25%. The local currency, along with most other Asian peers, gained on bets that the Federal Reserve might not opt for another 75 basis point hike at its December policy meeting.
The Indian rupee gained 0.36% today to settle at 82.44 to the dollar, as the rally in the Chinese yuan helped it erode losses accumulated over the week.
To help stop the rupee’s record slump, the Reserve Bank of India has now burned $111.37 billion from its forex vault, triggering concerns on that front as well. The central bank, however, attributed about two-thirds of the decline to valuation effects.
The soaring dollar, accelerating US interest rates, slowing global economy and alarming geopolitics have shattered global currencies, sending them to record highs against the greenback. On the other hand, interventions by central banks around the world to support their local units have eroded global currency reserves by around $1 trillion, or 7.8%, this year to $12 trillion, the biggest drop since Bloomberg started compiling the data in 2003.
Semi-annual report on foreign exchange reserves
The RBI also today released the semi-annual report on the management of foreign exchange reserves from April to September this year. During the six months under review, reserves fell from $607.31 billion at the end of March 2022 to $532.66 billion at the end of September 2022, he said.
On a balance of payments basis (i.e. excluding valuation effects), foreign exchange reserves increased by a measly $4.6 billion between April and June 2022, compared to an increase of 31. $9 billion between April and June 2021, the RBI said. Foreign exchange reserves in nominal terms (including valuation effects) decreased by $18.2 billion between April and June 2022, compared to an increase of $34.1 billion in the corresponding period of the year former.
At the end of September, out of a total of $472.81 billion in FCA, $361.84 billion was invested in securities, $81.64 billion was deposited with other central banks and the Bank for Settlements and the balance of $29.33 billion included deposits with commercial banks abroad. In a bid to explore new strategies and products in reserve management while diversifying the portfolio, a small portion of the reserves is managed by external asset managers, the RBI said. Investments made by external asset managers are governed by permitted activities under the RBI Act 1934.
Strong Forex Umbrella
Reserve Bank of India Governor Shaktikanta Das said last month that the central bank’s foreign reserve umbrella remained strong despite market uncertainty. He said the RBI has intervened in the foreign exchange market based on a continuous assessment of prevailing and evolving situations.
Das said about 67% of the decline in reserves in this fiscal year that began April 1 is due to valuation changes resulting from the appreciation of the US dollar and rising US bond yields. The governor said there was a $4.6 billion increase in foreign reserves on a balance of payments (BOP) basis during the first quarter of 2022-23.
Fitch Ratings said last week that reserve coverage remained strong at around 8.9 months of imports in September. This figure is higher than during the “taper tantrum” in 2013, when it stood at around 6.5 months, and offers the authorities the possibility of using the reserves to smooth out periods of external stress.
Foreign exchange reserves could fall to $510 billion, even in the worst-case scenario, if the current account deficit widens to 4% in FY23, estimates IDFC First Bank. Still, we would be better off than the Taper Tantrum period of May 2013, when reserves were below $300 billion.