The Reserve Bank of India’s (RBI) foreign exchange reserves fell by $4.5 billion to $528.37 billion in the week ending October 14, according to the central bank’s latest data. The current level of reserves is the lowest since July 24, 2020.
The drop in foreign exchange reserves was mainly due to a drop in the RBI’s foreign currency assets which fell by $2.8 billion on the week to $468.87 billion. Central bank gold holdings fell by $1.5 billion to $37.45 billion in the week ending October 14.
“India’s foreign exchange reserves have fallen to the lowest level since July 24, 2020, amid central bank intervention. This time, the value of dollar and gold assets both declined in because of central bank revaluation and selling of dollars,” said Dilip Parmar, research analyst at HDFC Securities.
During the week ending October 14, the rupee weakened a mere 0.03% against the US dollar. The U.S. dollar index, which measures the greenback against six major rival currencies, gained 0.5% this week.
According to Parmar, the steady movement of the rupiah last week was largely attributable to the interventions of the RBI. Traders said the central bank sold dollars sharply around the $82.40/$1 mark last week. During the current week, the RBI is said to have stepped up its interventions in the futures and futures segments of the foreign exchange market.
So far in 2022, the rupiah has weakened 10.1% against the US dollar as the war in Ukraine and aggressive Fed rate hikes have dampened appetite for emerging market currencies.
The RBI’s foreign exchange reserves have fallen sharply since Russia invaded Ukraine in late February. Reserves stood at $631.53 billion as of February 25. On September 30, RBI Governor Shaktikanta Das said that 67% of the decline in reserves in the current financial year was due to revaluation.
The latest data from the RBI showed it sold $4.2 billion net in the forex market in August, following sales of $19 billion in July. The RBI had sold $3.7 billion net in the market in June. In April, the RBI had net bought $1.9 billion in the foreign exchange market, followed by purchases of $2.0 billion in May.
The current level of reserves represents nearly 9 months of import cover. The level of reserves in September 2021 represented almost 15 months of imports.