India’s foreign exchange (forex) reserves declined $3.8 billion to $524.5 billion for the week ending October 21, data released by Reserve Bank of India on Friday showed. Reserves are at their lowest levels since July 2020. Since last year, reserves have declined by $115 billion.
The primary reason for the decline is foreign currency assets, which recorded a dip of $3.5 billion to $465 billion. Value of gold held by the central bank declined $2.47 billion compared to October 14. Gold accounts for 7.1 per cent of India’s total forex reserves.
The RBI has been selling rupees to prevent a rapid depreciation. On October 21, the rupee depreciated 6 paise to a record low of 83.06 against the US dollar in opening trade due to a stronger greenback overseas and unrelenting foreign fund outflows.
On October 27, the rupee and government bonds strengthened as weak economic data in the US sparked speculation of the Federal Reserve slowing the pace of its rate increases. The domestic currency settled at 82.50 per dollar as against 82.73 per dollar on Tuesday.
So far in 2022, the Fed has raised interest rates by 300 bps in order to bring down US inflation, which has hovered around 40-year highs for many months. The US rate hikes have led to sweeping strength in the dollar, higher US bond yields and consequently reduced the appeal of assets in emerging markets such as India.