Foreign exchange reserves declined to $564.053 billion
India’s forex reserves fell to the lowest level in two years, marking the third straight week of decline as the Reserve Bank of India, on its promise, depreciated the rupee from the previous 80 per dollar weakening during the week. intervened to save when the dollar boomed. at the highest level in two decades.
The country’s forex reserves fell by $6.687 billion to $564.053 billion in the week ended August 19, the RBI’s weekly statistical data showed, the lowest in two years and the third consecutive week of decline. The volume of the fall in the latest week, $6.687 billion, was the largest since mid-July.
The country’s import cover had declined by $2.238 to $570.74 billion in the week ended August 12 in the previous week. Barring the rise in the last week of July, which seems like a statistical blip, India’s forex war chest has declined every single week since the beginning of July. It has fallen for 20 of the 26 weeks since Russia invaded Ukraine in late February.
The fall of more than $67 billion in forex reserves since the Ukraine crisis and nearly $80 billion from last year’s highs has pushed the rupee closer to 80 from about $74 a dollar, a level that analysts say. RBI has ruthlessly defended.
The fate of the Indian currency in international markets has been driven largely by the dollar, driven by the exodus of capital into dollar-denominated assets and the price of almost every other major currency in the world.
On Friday, the Indian rupee marked easing against the greenback for a third week, as pressure from strong oil prices and the dollar tarnished some optimism from a report about the Asian nation linking to a coveted emerging-market bond index. done.
The Financial Times reported that JP Morgan is seeking investor ideas to qualify a large portion of the Indian government’s bond market for inclusion in the widely tracked GBI-EM Global Diversified Index of local currency debt. .
However, Kunal Sodhani, vice president of Global Trading Center at Shinhan Bank, told Reuters that these inflows were insufficient to help the rupee.
Sodhani said, “I don’t think the report has anything to do with today’s session. The rupee is weakening as the dollar index is approaching 109 and… there is hardly any inflow.”
“Oil is back at $102, and that pressure is because India’s underlying reality hasn’t changed. The trade deficit numbers are still a big concern.”
Due to rising imports of crude oil, on which the country is dependent for more than 80 per cent of its oil requirements, India’s The trade imbalance rose to an all-time high of $31 billion last monthExpressing concern about the country’s ability to maintain its current account.
Arnob Biswas, head of research at SMC Global Securities, told Reuters: “The dollar bid remains strong from oil marketing companies, while exporters are also jumping to lock in (higher forward) rates.”
The technical picture for the rupee “looks tired”, with the Reserve Bank of India possibly trying to protect the 80 level on one hand and strong dollar demand from importers on the other, Mr Vishwas said.
To blunt the impact of a geopolitical event on the broader economy, the RBI has intervened and openly stated that it will do whatever it takes to protect the rupee from wild volatility.
While the rupee eased to its all-time weak level of 80 against the dollar, the RBI has helped keep the Indian currency below that level by selling dollars in the spot and futures markets.
In doing so, the central bank has reduced the country’s import cover.
According to RBI Governor Shaktikanta Das, after the latest rate-setting meeting, when the central bank hiked rates for the third time in a row, India’s forex reserves are still the fourth largest globally.
S&P Global Ratings on Thursday said a report showed India has built up a buffer against cyclical difficulties and has sufficient foreign exchange reserves to withstand pressure on creditworthiness.
Speaking at the India Credit Spotlight 2022 webinar, Andrew Wood, Director, S&P Sovereign & International Public Finance Ratings, said the country has a strong external balance sheet and limited external debt, making it not that expensive to repay.
“The country has built up buffers against cyclical difficulties similar to those we are experiencing now,” Mr. Wood said.
He said the rating agency does not expect near-term pressures to seriously impact India’s creditworthiness.
The RBI has a stated policy of intervening in the forex markets if it sees volatility, but the central bank never gives target levels. In the current episode, it has successfully defended the depreciation above the 80-per-dollar-mark.
A separate Reuters report, quoting government and industry sources, showed that India may offer incentives to rupee-dealing exporters to boost the currency’s attractiveness and increase sales of goods to Russia, which is part of Western Europe. reduced due to restrictions.
The measure is aimed at boosting Russian commerce, after the RBI last month established a framework for international trade settlement using the rupee. Indian businesses are already exchanging dollars and euros for Asian currencies to settle transactions to dodge sanctions imposed on Russia due to its invasion of Ukraine.
According to Reuters sources, bankers and dealers have yet to increase their use of the rupee for settlement as they are still waiting for further information on stimulus from the government and the central bank.
A separate study by Saurabh Nath, Vikram Rajput and Gopalakrishnan S from the RBI’s Department of Financial Markets Operations, which does not represent the views of the central bank, noted that the reserves during the global financial crisis of 2008-09 were only 22 per cent compared to was reduced. 6 percent in the current episode after the Russian invasion of Ukraine.
On an absolute basis, the global financial crisis of 2008-09 caused reserves to decline by $70 billion, which declined to $17 billion during the COVID-19 period and to $56 billion as of July 29 this year due to Ukraine . Invasion-related effects.
But for now, the current crisis is not over and it could mean further erosion in the forex war chest of the country.