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HomeBusinessIndia's Forex Reserves Decline To Multi-Year Low of $528.37 Billion; Check Why

India’s Forex Reserves Decline To Multi-Year Low of $528.37 Billion; Check Why

India’s forex reserves dropped $4.50 billion to multi-year low of $528.37 billion for the week ended October 14, according to the latest data from the RBI. The overall reserves had increased by $204 million to $532 billion in the previous reporting week, which was the first weekly increase in the kitty since August this year.

In October 2021, the country’s forex kitty had reached an all-time high of $645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments. Foreign currency assets (FCA), a major component of the overall reserves, saw a drop of $2.828 billion to $468.668 billion during the week to October 14, according to the latest Weekly Statistical Supplement released by the Reserve Bank of India (RBI).

Expressed in dollar terms, the FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves. Gold reserves, whose value had risen by $1.35 billion in the previous reporting week, saw a decline of $1.502 billion in the value to USD 37.453 billion, it said.

The Special Drawing Rights (SDRs) were down by $149 million to $17.433 billion, the apex bank said. The country’s reserve position with the IMF were down by $23 million to $4.813 billion in the reporting week, the apex bank data showed.

Why Are Forex Reserves Falling?

India has been witnessing the outflows of foreign portfolio investment in the past few months, barring few months. In October till 15th, foreign investors pulled out nearly Rs 7,500 crore from the Indian equity markets on concerns of monetary policy tightening by the US Federal Reserve and other central banks globally, which could hamper global economic growth. With this, the total outflow by foreign portfolio investors (FPIs) in India reached Rs 1.76 lakh crore in 2022. The outflow has strengthened the dollar due to higher demand, thus weakening the rupee.

The Reserve Bank of India has burned $114 billion from its forex reserves to rein in the rupee’s continuous fall.

The rupee recently fell below the 83-mark for the first time ever against the dollar due to unabated foreign capital outflows and a strong dollar amid costlier crude oil in the international markets and risk-averse sentiment among investors. The rupee has fallen more than 8-9 per cent since the beginning of this calendar year. It has touched its all-time lows multiple times in 2022 so far.

Not only India, global foreign currency reserves have declined about 7.8 per cent, or by $1 trillion, this year to $12 trillion. It is the biggest drop since at least 2003. The drop comes against the backdrop of central banks across the world, including India, intervening to support currencies.

(With Inputs From PTI)

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