The country’s foreign exchange reserves fell sharply during the week ended January 28, 2022 due to revaluation among foreign currency assets.
According to the latest Reserve Bank of India (RBI) data, total reserves fell by $4.5billion during the week mainly due to fall in foreign currency assets of $3.5 billion. Gold reserves fell by 844 million during the week. As at end-September 2021, the RBI held 743.84 metric tonnes of gold. While 451.54 metric tonnes of gold is held overseas with the Bank of England and the Bank for International Settlements (BIS), 292.3 tonnes of gold is held domestically.
This is the steepest drop in foreign currency reserves since the week ended February 5, 2021 when reserves fell by $6.2 billion.
The total reserves were at $629.8 billion at the end of the reporting week. Foreign exchange reserves are down almost $12 billion from its all-time high, when it reached a level of $642.45 billion during the week ended September 3, 2021.
Although both US dollar and Euro are intervention currencies and the Foreign Currency Assets (FCA) are maintained in major currencies, the foreign exchange reserves are denominated and expressed in US dollar terms. Movements in the FCA occur mainly on account of purchase and sale of foreign exchange by the RBI, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the central government and changes on account of revaluation of the assets.
According to RBI data, foreign exchange reserves moved up steadily between March and September last year. However, there has been a decline since then.
With oil crude prices moving over $90 a barrel, the rupee has come under pressure as higher oil prices will mean a larger import bill. The RBI intervenes in the currency market to reduce volatility.
India imports over 80 per cent of its crude oil requirements. Economists estimate a 10 per cent hike in oil prices leads to a $15-billion increase in the current account deficit.
India’s crude oil imports were up 119.2 per cent on a year-on-year basis to $118.3 billion during April-December 2021, up from the $54 billion during the same period in FY21. At this rate, India’s oil import bill is expected to be around $158 billion in FY22, just a notch below the all-time high of $165 billion in FY14.
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