India’s foreign exchange reserves near 2-year low

MUMBAI: India’s foreign exchange reserves dropped to their lowest since October 2020, as the Reserve Bank of India (RBI) proactively intervened to aid the local currency in the face of a surging dollar, analysts said on Monday.
FX reserves dropped to $553.1 billion in the week ended Sept. 2, a decline of almost $8 billion from the previous week, according to data released by the RBI on Friday.
It was the biggest drawdown in reserves since early July.
In the week ended Sept. 2, the rupee had fallen to a record low of 80.12 against the dollar on prospects of aggressive monetary tightening by the US Federal Reserve.
Last week, RBI governor Shaktikanta Das said the central bank will anchor expectations around the depreciating rupee and intervene to prevent an overshoot, ensuring the exchange rate reflects fundamentals.
Vivek Kumar, an economist at QuantEco Research, pointed out that not all of the decline in reserves was due to RBI spot intervention.
Foreign exchange mark-to-market and maturity of forward contracts would have likely contributed to the fall, Kumar said.
The RBI has been regularly dipping into the reserves to shield the rupee from the volatility fuelled by US Fed’s rate hikes and high commodity prices.
The dollar index and short-term Treasury yields have climbed to multi-year highs.
“RBI might as well hang on with the current strategy for a little bit longer and hope the commodity price softening continues and the dollar does not find any incremental reasons to strengthen,” Kumar said.

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