India's forex reserves slip $5 bn in a week amid RBI interventions

India’s foreign exchange reserves declined $5 billion to $588.31 billion during the week ended July 1, the latest data released by the Reserve Bank of India (RBI) showed.

The fall in forex reserves was mainly because of a decline in foreign currency assets worth $4.5 billion, the data showed. This was likely on account of the central bank stepping up intervention in the foreign exchange market. The central bank has been selling dollars to curb excessive volatility in the exchange rate and prevent runaway depreciation in the rupee.

In the week ended July 1, the rupee depreciated 0.9 per cent versus the US dollar and weakened past the 79-mark for the first time. The rupee has declined 6.2 per cent against the dollar in 2022. On July 5, the rupee fell to a new low of 79.36 versus the dollar.

Most emerging market currencies have faced pressure since the start of the war in Ukraine in late February as investors have rushed to safe-haven assets.
 

The RBI’s total reserves were at $631.53 billion as on February 25. “The $5-billion decline in forex reserves was on the back of a fall in forex currency assets which could be due to the central bank's intervention and revaluation as other currencies like the euro, pound, and yen declined sharply in the past couple of weeks,” Dilip Parmar, research analyst at HDFC Securities, said. 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.

In its financial stability report released on June 30, the RBI said the current level of reserves is equivalent to nearly 10 months of imports projected for the current year.

In June 2022, overseas investors had net sold $30.29 billion worth of Indian assets, NSDL data showed. India’s trade deficit, too, was a record monthly high of $25.63 billion in June.