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India’s Reserves Steepest Weekly Fall Ever Of $12 bn To $606.425 bn

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The country’s foreign reserves fell by $11.173 billion to $606.475 billion, falling for the fourth week in a row and the steepest weekly drop on record as the rupee fell in value. As the rupee fell in value, forex reserves fell by nearly $12 billion for the fourth week in a row, the steepest weekly drop on record. 

In the last four weeks, India’s reserves have fallen by nearly $27 billion. 

According to the latest Reserve Bank of India data, the currency has taken a hit due to fears of widening external deficits as a result of the Ukraine war and a rising dollar, which has been boosted by the US Federal Reserve’s aggressive stance on monetary policy tightening.

The country’s forex reserves have fallen for the fourth week in a row. The reserves fell by $2.03 billion to $617.648 billion in the previous week, according to the RBI’s weekly statistical supplement, which ended on March 25. 

The most recent record steepest week after week drop for possible later use was because of a drop in center cash resources, which fell by $10.727 billion to $539.727 billion, suggesting that the RBI mediated in the open market to safeguard the rupee.

The previous worst weekly drop was $9.6 billion in the week ending March 11. 

The Russian invasion of Ukraine has caused currency market volatility. Ordinarily, the RBI intercedes in the money market to diminish unpredictability by selling from its stores.

According to Barclays, the fallout from the Russia-Ukraine war will keep India’s balance of payment (BoP) risks elevated for some time. 

According to the RBI data, the value of gold reserves fell by $507 million to $42.734 billion for the reporting week. 

This record balance broadened basically because of a sharp weakening in the import/export imbalance, which expanded to $60.4 billion in Q3 21 from $44.4 billion in Q3 21, as imports expanded emphatically in the midst of a standardization of action and rising ware costs.

Exports held up well, but not well enough to offset the widening deficit, which was largely due to improved growth and higher global prices.

Given the ongoing improvement in growth and the surge in commodity prices, particularly for energy, this dynamic is expected to continue in Q1 22 and Q2 22. 

The International Monetary Fund’s (IMF) extraordinary drawing freedoms (SDRs) expanded by $58 million to $18.879 billion, as indicated by the information.

The country’s reserve position with the IMF increased by $4 million in the reporting week, to $5.136 billion, according to the RBI. 

“A bigger import/export imbalance has pushed this record to a nine-year low, with the deficiency now not being totally counterbalanced by capital inflows.”

 With commodity prices rising, India’s trade and current account deficits are expected to remain large for some time.