India’s forex reserves fall $2.40 billion to 3-month low of $560 billion

India‘s foreign exchange reserves saw a dip of $2.397 billion, dragging the position to a three-month low of $560 billion as on March 10, 2023, Reserve Bank of India‘s data showed on Friday. After falling for five straight weeks, India’s foreign exchange reserves had risen for the first time to USD 562.40 billion as of the week ended March 3.

India’s foreign currency assets saw a dip of around $2.2 billion to $494.86 billion, data showed. Expressed in dollar terms, FCA include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

India’s gold reserves and SDR holdings too saw a reduction as on March 10, with both reserves falling $110 million and $53 million each. India’s gold reserves and SDR holdings stand at $41.92 billion and $18.12 billion respectively.

The country’s reserve position in the IMF saw a fall of $11 million, taking it to $5.1 billion.

The central bank intervenes in the spot and forwards market to prevent runaway moves in the rupee’s exchange rate against the dollar. The RBI has said in the past that changes in reserves also stem from valuation gains or losses.

Last week, the rupee fell 0.1% against the dollar as the banking crisis in the United States unfolded, with the currency trading in a range of 81.6150 to 82.2975.

India’s reserves have been falling from the peak as the rupee has been under pressure and the monetary authority has been taking measures to defend the currency from extreme volatility. In 2022 the cost of defending a falling rupee was over USD 115 billion of the reserves.The worst drop was in the week to February 10 when the reserves plunged by a steep USD 8.32 billion to USD 566.95 billion.

In October 2021, the forex kitty had reached an all-time high of USD 645 billion.

The rupee settled 18 paise higher at 82.58 against the US dollar on Friday.

The ongoing turbulence in the United States and European banking sector may make the Reserve Bank of India more willing to let the rupee weaken below a key psychological level, analysts said.

The RBI has, on multiple occasions, intervened to protect the rupee from 83 levels over the last several weeks, holding the currency in a tight band.

“Its clear to us that the RBI will not defend the rupee at 83 or any other level if there is a severe, broad episode of risk off,” the head of trading at a private sector bank said.

“Against a barrage of dollar outflows and speculation that will follow if the (U.S. and European) banking situation worsens, the RBI will definitely be more judicious on how it expends the reserves.”

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