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India Forex Reserves Drop Below USD 600 Billion After 8 Weeks of Decline

India's forex reserves have dropped by over USD 34 billion since Russia invaded Ukraine.

Published
Business
2 min read
India Forex Reserves Drop Below USD 600 Billion After 8 Weeks of Decline
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Following eight consecutive weeks of decline, India's foreign exchange reserves dropped below USD 600 billion, the lowest level in nearly a year.

The Reserve Bank of India's latest weekly statistical supplement revealed that forex reserves had fallen to USD 597.728 billion in the week ending 29 April, a decline of USD 2.695 billion from the previous week.

The country's forex reserves, which are considered to be an 'import cover', had reached an all time high of USD 642.453 billion back on 3 September 2021, after crossing the USD 600 billion mark for the first time in June that year.

In recent months, the rupee has been severely weakened because of a variety of factors, hitting an all-time low of Rs 76.97 to 1 USD on 7 March. The eight straight weeks of decline in India's forex reserves began on 11 March.

On Friday, 6 May, the rupee nearly dropped to its all-time low again, ending trading at 76.93/USD.

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A variety of global factors have played a role in the decline of India's forex reserves, including the Russian invasion of Ukraine. Since 24 February, Indian forex reserves lost USD 34 billion or about 5.4 percent, according to NDTV.

Global supply chain issues and increases in commodity prices, including those caused by the war in Ukraine, have caused serious inflation in countries around the world, causing central banks to take measures to address the problem.

This for instance led to the US Federal Reserve hiking rates by 50 bps, the highest increase in two decades – which has strengthened the dollar even as other currencies like the INR have depreciated.

According to Business Standard, the RBI has been taking aggressive measures to prevent a bloodbath in the foreign exchange markets, selling dollars via public sector banks and thereby causing the decline in forex reserves.

"The RBI has been using reserves as ammunition to arrest rupee fall,” Abhiskek Goenka, founder and CEO, IFA Global told the newspaper.

Forex reserves are made up of four components:

  1. Foreign currency assets

  2. Gold

  3. Special Drawing Rights

  4. Reserve Position in IMF

All four components had declined in the week ending 29 April.

An unnamed central bank observer told the Economic Times that the RBI does not want forex reserves to dip below the USD 600 billion mark, which means it could change its policy on dollar sales in the coming weeks. India's forex reserves are meant to cover around 12 months of imports, according to the newspaper.

(With inputs from NDTV, Business Standard and Economic Times)

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