India’s foreign exchange reserves fell by $9.64 billion, the most in two years

India’s foreign exchange (forex) reserves fell by $9.646 billion to $622.275 billion in the week ended March 11. The biggest drop in nearly two years. While the Reserve Bank of India (RBI) massively sold dollars to prevent the fall in the value of the rupee.

According to the RBI Weekly Statistical Supplement, foreign currency assets, which constitute the largest component of foreign exchange reserves. It fell from $11.108 billion to $554.359 billion in the week under review.

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Expressed in US dollars, foreign currency assets include the effect of the appreciation or depreciation of non-dollar currencies such as the euro, British pound sterling and Japanese yen held in foreign exchange reserves.

This sharp drop in the country’s currency holdings coincides with the week in which the rupee hit an all-time low. The Indian rupee plunged to a record high of 77.02 against the US dollar on March 7.

Gold reserves rose by $1.522 billion to $43.842 billion in the reporting week, the data showed. The RBI said Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) fell by $53 million to $18.928 billion.

commentsThe country’s reserve position with the IMF decreased by $7 million to $5.146 billion last week.

Why have reserves decreased?

When the rupiah fell below 77 levels after the Russian-Ukrainian war escalated and crude oil prices spiked. The Reserve Bank of India (RBI) sold dollars to avoid further decline in value. The RBI intervention – dollar selling through PSU banks – began when the rupiah broke through the 76 level and headed towards the 77 mark.

The RBI sold $5.135 billion to the banks on March 8 and simultaneously agreed to buy back the dollars at the end of the swap settlement period. When the central bank sells dollars, it withdraws an equivalent amount in rupees, thereby reducing rupee liquidity in the system.

The influx of dollars into the market strengthened the rupee which hit the 77 mark against the dollar on March 8th. On March 17, the rupee jumped 41 paise to close at 75.80/81 against the US dollar on Thursday March 17.

Get up before you fall

India’s foreign exchange reserves increased by $394 million to $631.92 billion in the week ending March 4. It is not far from its all-time high of $642.453 billion, according to Reserve Bank data released on Friday.

In the reporting week ending March 4, the gain in reserves was due to an increase in foreign currency holdings (FCA). A large component of overall reserves showed weekly data from the Reserve Bank of India (RBI).

Expressed in dollars, foreign currency holdings include the effect of the appreciation or depreciation of non-US units such as the euro, pound and yen held in foreign exchange reserves.

It reached a lifetime high of $642.453 billion during the week ended September 3, 2021.