New Delhi: In the week ending August 12, India’s foreign exchange reserves fell by more than $2 billion as the Reserve Bank of India intervened to support the rupee and keep the exchange rate below 80 to the dollar.
The Indian central bank has stated that this effort is crucial and that it will make all necessary efforts to preserve the stability of the rupee and prevent any severe movements despite highly volatile currency markets.
The country’s foreign exchange reserves fell to $570.74 billion in the week ended August 12, down from $572.978 billion the week before, according to the RBI’s weekly statistics supplement data.
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The country’s import cover decreased for the second consecutive week, and the current week’s magnitude of the decline was the highest in a month.
India’s foreign exchange reserves have decreased since Russia’s invasion of Ukraine for 19 of the last 25 weeks, losing almost $61 billion in that time.
After the most recent rate-setting meeting, when the central bank raised rates for the third time in a row, RBI governor Shaktikanta Das noted that India’s foreign exchange reserves were still the fourth highest in the world.
The rupee has lost value against the dollar, falling from roughly 74 to just under 80 since the Ukraine crisis, in line with a wider migration of money into assets denominated in dollars.
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The dollar, which serves as the world’s reserve currency, has gained against practically all major currencies, and has so reigned supreme.
The RBI has helped hold the Indian currency below that level by selling dollars in the spot and futures markets, despite the rupee momentarily reaching its all-time low of 80 versus the dollar.
However, a report by central bank executives claims that over time as a result of RBI’s operations, the withdrawal of foreign exchange reserves during times of currency market volatility has decreased.
During the study’s time frame, which begins in 2007 and covers the current bout of volatility brought on by the Russia-Ukraine war, expectations of volatility have also decreased.
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Although the RBI has a declared policy of intervening in the foreign exchange markets when it detects volatility, the central bank never sets a certain level as its aim. It has successfully resisted the rupee’s depreciation above the 80-to-dollar threshold in the present phase.
According to a study by the RBI’s financial markets operations department by Saurabh Nath, Vikram Rajput, and Gopalakrishnan S, which does not reflect the opinions of the central bank, reserves were depleted by 22% during the 2008–2009 global financial crisis, compared to only 6% in the current episode following Russia’s invasion of Ukraine.
The global financial crisis of 2008–09 resulted in a $70 billion absolute loss of reserves, which decreased to $17 billion during the COVID–19 era and to $56 billion as of July 29 this year as a result of the impact of the invasion of Ukraine.
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The rupee’s decline and the country’s import cover have likely been restricted by foreign investors’ return to Indian capital markets since last month.
Foreign investors did in fact change from net sellers of Indian assets for several months to net purchases of domestic equities and bonds in July, with that pattern continuing this month.
The price of crude oil has dropped below $100 per barrel internationally, which has bolstered investor confidence. On the back of a stronger US dollar and worries that a downturn in the economy would reduce demand for petroleum, oil prices fell 1.5% for the week.\
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