India’s forex reserves hit 5-month low of $656 billion, drop by $47 billion in 7 weeks; Rupee crashes to 8-month low
- India's forex reserves dropped by $1.31 billion to $656.582 billion. The forex kitty had dropped a record $17.761 billion to $657.892 billion in the previous reporting week.
India's foreign exchange (forex) reserves extended losses for the eighth consecutive week to hit a five-month low after dropping by $47 billion cumulatively in the last seven weeks. The forex reserves dropped by $1.31 billion to $656.582 billion for the week ended November 22, Reserve Bank of India (RBI) data showed on Friday. The kitty had dropped a record $17.761 billion to $657.892 billion in the previous reporting week ending November 15.
For the week ended November 22, foreign currency assets (FCA) -- a major component of the reserves -- decreased $3.043 billion to $566.791 billion. Changes in FCA are caused by the RBI's intervention in the forex market and the appreciation or depreciation of foreign assets held in the reserves.
Expressed in dollar terms, the FCA includes the effect of non-US units' appreciation or depreciation, such as the euro, pound, and yen, held in foreign exchange reserves. The forex reserves include India's reserve tranche position in the International Monetary Fund (IMF).
Gold reserves increased $1.828 billion to $67.573 billion during the week. The special drawing rights (SDRs) were down $79 million to $17.985 billion. In the reporting week, India's reserve position with the IMF was also down $15 million to $4.232 billion.
Forex reserves hit an all-time high of $704.885 billion in September and have declined for multiple weeks when the rupee has been under pressure. The RBI intervenes on both sides of the forex market to prevent undue volatility in the rupee. In recent sessions, the RBI has frequently intervened to support the rupee near the psychologically important support level of 84.50.
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Indian rupee crashes to all-time low, logs worst month since March
The Indian rupee ended November 2024 with its worst monthly performance in eight months. Donald Trump's victory in the US election boosted the dollar and US bond yields while foreign portfolio outflows persisted.
The rupee crashed 13 paise to settle at a fresh all-time low of 84.60 against the US dollar on Friday, nearly flat on the day but within touching distance of its lifetime low of 84.5075, which it hit last week. Unabated foreign fund outflows dragged down the local unit even as weak domestic macroeconomic data jolted the overall sentiment.
The rupee fell nearly 0.5 per cent for the month, the steepest decline since March. The US dollar has rallied, and US yields have risen since Trump's victory in the November 5 presidential elections, hurting emerging market assets. Uncertainty about the US Federal Reserve's path to lowering policy rates also weighed on the local currency.
The rupee's previous lowest closing level, 84.50, was recorded on November 21. The US dollar index, which gauges the greenback's strength against a basket of six currencies, was up two per cent in November, while the 10-year US Treasury yield rose to as high as 4.50 per cent, earlier in the month, its highest since July.
Foreign investors net sold over $1.7 billion of local stocks and bonds in November, adding to the $11.5 billion outflow of the previous month. Still, the rupee has fared better than most of its regional peers, largely due to frequent interventions by the central bank. Foreign Institutional Investors (FIIs) offloaded ₹4,383.55 crore in the capital markets on a net basis on Friday.
In addition to its dollar-selling interventions across the spot, futures, and non-deliverable forward markets, the RBI has asked banks to lower their speculative bets against the currency and increased its scrutiny of lenders' forex activity. Traders expect the RBI to continue its firm defence of the currency and only allow gradual depreciation.
Emerging market currencies may stay on tenterhooks heading into the inauguration of the incoming Trump administration in January as investors await clarity on its policies, especially surrounding trade tariffs. On the day, Asian currencies were mostly stronger, benefiting from the dollar's softness, but traders said the rupee could not gain in the face of dollar demand from foreign banks.
Forex traders said dollar demand from importers for meeting month-end payment obligations weighed on the rupee, while the government's gross domestic product (GDP) data released later in the day adversely impacted the currency market, toppling the local unit to its record low.
The latest government data showed that India's economic growth slowed to a near two-year low of 5.4 per cent in the July-September quarter of this fiscal (Q2FY25) due to poor performance of manufacturing and mining sectors and weak urban consumption. The GDP grew by 6.7 per cent in the preceding June quarter (Q1FY25).
The previous low level of GDP growth at 4.3 per cent was recorded in the third quarter (October-December 2022) of the financial year 2022-23. Meanwhile, at the end of the first seven months of the current financial year, the central government's fiscal deficit touched 46.5 per cent of the full-year target.
The fiscal deficit stood at 45 per cent of the budget estimates in the corresponding period of 2023-24. Also, the data on the output of eight key infrastructure sectors showed the expansion rate at 3.1 per cent in October 2024, sharply lower compared to the 12.7 per cent growth registered in the same month last year.
With inputs from PTI and Reuters
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Business NewsEconomyIndia’s forex reserves hit 5-month low of $656 billion, drop by $47 billion in 7 weeks; Rupee crashes to 8-month low
First Published:29 Nov 2024, 10:22 PM IST
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