For six weeks in a row, foreign exchange reserves reached an almost two-year low.
Since the Ukraine crisis, India's foreign exchange holdings have decreased by more than $80 billion, including more than $2 billion in the last week as the Reserve Bank of India sold dollars to help the rupee cross the 80-to-the-dollar mark.
According to the RBI's most recent weekly statistics, foreign exchange reserves reached their lowest level in over two years during the week ending September 9 when they decreased by $2.234 billion to $550.871 billion from $553.105 billion the previous week.
Since Russia invaded Ukraine in late February, India's import coverage has decreased for six weeks in a row and 23 out of 29 weeks, which is a reflection of the RBI's ongoing withdrawal of reserves to counter a rise in the US dollar brought on by capital outflows to dollar-denominated assets.
The country's foreign exchange reserves are down more than $90 billion from their peak in late October.
A growing current account deficit has not been able to stop the reduction in import coverage despite a consistent inflow of foreign capital into the country's markets.
The RBI intervened to control the currency against severe volatile swings after the rupee plunged sharply this year from over $74 to a weak record high of over 80 against the dollar.
The RBI's most recent monthly bulletin, which was published on Friday and showed that the central bank sold a net $19.05 billion in the spot currency market in July, provided some support for that.
Rupee market activity indicates that this pattern persisted into August and current month.
As the dollar continues to rise to record highs not seen in more than two decades versus most major currencies, the reduction in the nation's foreign exchange reserves will probably be the main topic for a while.
On Friday, the rupee saw its worst week in five as the dollar hit a record high due to increased bets on the Federal Reserve raising interest rates as well as warnings from the World Bank and International Monetary Fund about sluggish economic growth and rising inflation.
According to a currency broker who spoke to Reuters, market participants were cautious and considered 80 rupees to the dollar as a level to protect.
Following a global sell-off caused by approaching recession risks of the broadest and most aggressive policy tightening in decades, Indian equities fell into a market slaughter on Friday, wiping out the week's gains and extending their losses for the third consecutive session.
This means that the RBI will continue to pull down reserves to shield the rupee from extreme fluctuations.
We anticipate that the strong dollar and widespread risk aversion will have a detrimental impact on the rupee's trading behavior. Anuj Choudhary, a research analyst at Sharekhan by BNP Paribas, told PTI that after IMF spokesman Gerry Rice expressed concern about a further slowdown in the global economy and claimed that some nations are anticipated to face recession by 2023, global markets tumbled.
Despite a considerable decline in forex reserves this year, the nation has nonetheless managed to do better than its competitors in emerging economies, where import coverage has reached crisis levels.
According to the most recent data from the RBI, India's foreign exchange assets (FCA), which account for the largest portion of foreign exchange reserves, decreased by $2.519 billion to $489.598 billion in the week ending September, down from $6.527 billion to $492.117 billion in the same week during the reporting period.
The foreign currency assets denominated in dollars comprise the value of the appreciation or depreciation of non-US currencies held in foreign exchange reserves, such as the euro, the pound, and the yen.
However, the value of gold reserves increased by $340,000,000 to reach $38,644,000,000.
SDRs decreased by $63 million to $17.719 billion during the reporting week, but the nation's reserve position with the IMF increased by $8 million to $4.91 billion.
