India's foreign exchange reserves decline $4.6 billion to $596 billion

India’s foreign exchange reserves declined $4.6 billion to $596 billion for the week ended June 10, the latest data released by the Reserve Bank of India (RBI) showed. The fall in total reserves was mainly because of a decline in foreign currency assets worth $4.5 billion, the data showed.

The central bank has been aggressively intervening in the foreign exchange market for the last few months. RBI has been selling dollars to curb any rapid depreciation of the rupee. 

Most emerging market currencies have come under pressure since the start of the war in Ukraine in late February as investors rush for safe-haven assets. The rupee has declined close to 5 per cent against the dollar in 2022.

Since late February, the foreign exchange reserves have declined by $36 billion.

The foreign exchange reserves touched an all-time high of $642 billion for the week ended September 3. That amount was equivalent to 14-15 months of imports for 2021-22.

The current level of foreign reserves is enough for less than 10 months of imports projected for 2022-23.

“The RBI’s intervention in the market could be one of the reasons (for the fall in FX reserve),” said Bhaskar Panda, senior vice-president, treasury advisory group, HDFC Bank.

“Volatility in the exchange rate will remain, given the way central banks are approaching inflation. The RBI normally tries to curb that volatility in the dollar/rupee... Going forward we need to see how much more depreciation can happen. I think the rupee may hit 79 against a dollar by the end of the month,” Panda told Business Standard.

The rupee, which breached the 78-mark against the dollar for the first time earlier this week, continues to trade at that level. The rupee traded in a narrow band on Friday and closed unchanged from its previous close of 78.08/$.