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Forex reserves of India decrease by $8 bn in a week, lowest since October 2020

New Delhi: The headline foreign exchange reserves of the Reserve Bank of India (RBI) fell by $7.9 billion to $553.11 billion in the week ending September 2, according to the most recent statistics from the world’s major financial institutions.

According to the RBI data, reserves are at their lowest level since October 9, 2020.

One of the causes of the decline in reserves, according to analysts, was the RBI’s defence of the rupee by dollar sales during a time when the dollar was growing globally.

Incidently, the rupee hit a new intraday low of 80.13 against the US dollar during the week that ended September 2.

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The dip in foreign currency assets, which decreased by $6.5 billion to $492.12 billion in the week ending September 2, was substantially responsible for the decline in foreign exchange reserves.

The RBI has been continuously intervening in forex markets to protect against any sharp depreciation in the rupee. In August alone, the RBI’s forex reserves declined from $573.9 billion to $553.1 billion while the rupee remained resilient among Asian peers and became the median performer,” HDFC Securities research analyst Dilip Parmar told Business Standard.

“The forex kitty declined by $7.9 billion — as the RBI weekly statistical supplement showed — which was on the back of some non-dollar currency devaluation and dollar selling to curb the unwarranted volatility in the forex market,” he said.

While the rupee fell to a new low of 80.13 per US dollar on August 29, it ended the week 0.1 percent better versus the greenback. Dealers said that the RBI sold more than $1 billion worth of currency on August 29 alone in order to control the rupee’s depreciation.

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Shaktikanta Das, governor of the RBI, stated earlier this week that the central bank’s interventions in the foreign exchange market were intended to stabilise expectations on the depreciation of the rupee as well as prevent undue volatility. In relation to the dollar, the rupee has fallen 6.6% so far in 2022.

The RBI’s headline foreign exchange reserves have decreased by about $80 billion from $631.53 billion as of February 25. This decline is largely due to the central bank’s defence of the rupee.

“The USD-INR pair was once again approaching to test 80.00 mark, but made a high of 79.94 and reversed due to heavy intervention seen from the RBI which is also a reflection from the declining forex reserves data for the week,” Shinhan Bank’s Vice-President (Global Trading Centre) Kunal Sodhani said.

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“USD-INR may continue to hold 80.00 levels for some more time, while immediate support comes in at 79.10 levels,” he said.

The RBI had stated in August that reserves worth $573 billion were sufficient to cover 9.4 months’ worth of anticipated imports for the current fiscal year.

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