Home / News / India /  Forex reserves decline by $2.2 bln to $550.87 bln in week ending 9 Sept: RBI

India's foreign exchange (forex) reserves continue to decline as a sharp plunge in foreign currency assets (FCA) drag. The country's forex reserves inched closer to the $550 billion mark. In the week ending September 9, 2022, the reserves dropped by $2.2 billion. Except for the reserve position in IMF and gold, other components in the forex market declined in the week under review.

Data from RBI showed that India's forex reserves stood at $550.871 billion, down by $2.234 billion compared to the previous week.

In the week ending September 2, 2022, reserves stood at $553.105 billion.

The major component in forex reserves, FCA dropped further by $2.519 billion in the week under review, to $489.598 billion. In the previous week, FCA was at $492.117 billion.

Further, in the week ending September 9, Special drawing rights (SDRs) also declined by $63 million to $17.719 billion.

However, gold reserves surged by $340 million to $38.644 billion in the week ending September 9. In the previous week, gold reserves had contracted by $1.339 billion.

Also, the reserve position in IMF stood at $4.910 billion rising by a mere $8 million in the week under review.

According Nirav R Karkera Head - Research and Sagar S Shinde AVP - Research at Fisdom, forex reserves are at comfortable levels, but the pace of decline amid a challenging interest rate and currency environment is a definite cause for concern. These ropes need to be tightened a bit.

In their latest report for the current month, the duo said, "We expect foreign exchange reserves to deplete further due to the widening current account deficit, near-term sovereign debt obligations and interventions by the reserve bank of India to support the rupee depreciation."

Year-to-date, the Indian rupee has depreciated by more than 7% against the US dollar due to headwinds from tighter global financial conditions, risk-off sentiment, and a strengthening US dollar. The greenback had touched a 20-year peak earlier this month, making other currencies vulnerable in the forex market including the rupee. However, the domestic currency has managed to stay below the 80 level against the dollar so far in the current month.

All eyes have now shifted towards US Federal Reserve's policy outcome and a 3rd large rate hike possibly by another 75 basis points is being expected. US Fed chair Jerome Powel earlier this month had indicated to remain hawkish to tame multi-decadal high inflation.

The dollar currently finds support from U.S. data that indicates moderate improvement in consumer sentiment in September, and a higher-than-expected inflation print in August.

In September 2022 bulletin, RBI in its 'State of Economy' note said, a loss of momentum in global economic activity may be taking the edge off inflation, which remains elevated. The Indian economy is poised to shrug off the modest tapering of growth momentum in the first quarter of 2022-23. Aggregate demand is firm and poised to expand further as the festival season sets in. Domestic financial conditions remain supportive of growth impulses. Inflation remains elevated and above the tolerance level, underscoring the need for monetary policy to keep second-order effects contained and inflation expectations firmly anchored.

India's CPI inflation rose to 7% in August on higher food inflation compared to 6.71% the previous month. The country's inflation is above RBI's upper tolerance limit of 6%, for the eighth consecutive month.

Going ahead, Fisdom experts said, "in the near term and considering the risks and insulations, we view the INR as exhibiting a depreciative bias and have good reason to believe that the currency will consolidate in the range of a rupee within the 79.5 and 80.5 mark versus USD."

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