The rupee hits its all-time low; foreign exchange reserves below $600 billion

The rupee slipped to $76.97 in intraday trading on Friday, hitting an all-time low before bouncing back on possible intervention from the Reserve Bank of India (RBI). The country’s foreign exchange reserves also fell to $598 billion for the week ending April 29, down from their record high of $642 billion in the week ending September 3, 2021, according to the latest data from the RBI.

The rupiah ended the day at $76.93, losing 67 paisa or 0.87% from its previous close. The rupiah opened lower on Friday at $76.64 from the previous close of 76.26, on the heels of a sharp drop in US stocks as Treasury yields rose as investors rushed for safe-haven assets, leading to a stronger dollar. Crude prices falling to around $110 a barrel added pressure on the rupee as the country imports more than 80% of its oil needs.

The previous all-time low was March 7 when the rupiah finished at $76.97.

“As global markets spooked due to a 10% inflation forecast by the Bank of England, the dollar index fell from 102.5 to 104.06, Asian currencies were all in decline against the dollar, shares fell and news of mutual fund fraud Axis kept the rupee dollar at 76.9 levels near its all-time low after touching 76 yesterday (Thursday), “said Anil Kumar Bhansali, Head of Treasury, Finrex Treasury Advisors.

The rupee has depreciated by 1.5% in the current financial year.

“The RBI was there to protect the depreciation of the rupee but at a discreet level between 76.7 and 76.95. FIIs remained the main buyers of dollars outside of the oil companies, with oil hovering around $113 a barrel Bhansali said.

The RBI intervened aggressively in the foreign exchange markets by selling dollars, which led to a decline in foreign exchange reserves.

“The RBI used reserves as ammunition to stop the rupee’s fall,” said Abhiskek Goenka, Founder and CEO of IFA Global.

In 2022, foreign exchange reserves have decreased by $36 billion.

“We believe that at some point the RBI will have to let the rupiah depreciate as continued loss of reserves is not an option in these volatile times. During Covid we could fight as we were constantly increasing reserves and the oil was at its lowest level, but now it’s the other way around,” Goenka said.

With the trade deficit widening, analysts predict that the country is heading towards a double-digit balance of payment deficit for the current fiscal year, which is negative for India’s unit. Analysis by Standard Chartered Bank economists showed that both import and export values ​​had returned to pre-Covid levels or exceeded them by the end of FY22.

“We expect a current account deficit of 2.5% of GDP and a BoP deficit of $10 billion in FY23, with the risk of larger deficits,” the Standard Chartered report said.

The rupiah could break above $77 if investors continue to rush into safe-haven assets amid an expected widening of India’s current account and limits on the RBI to intervene in the currency market. “The Rupee fell to its lowest level since March 2022 as overall Dollar strength continues to weigh on major crosses. We expect USDINR (Spot) to trade sideways with a positive bias and quote in the range of 76.4 and 77.2,” said Gaurang Somaiya, Forex and Bullion Analyst, Motilal Oswal Financial Services.