India’s foreign exchange reserves contracted by $571 million after witnessing gains for five weeks in a row. Forex reserves with the Reserve Bank of India (RBI) stood at $563.5 billion for the week ended December 16, according to data released by the central bank.
The decline was mainly on account of a fall in the foreign currency assets, which declined by $500 million during the week. Other than the US dollar, the RBI holds pound sterling, yen and euro in its forex reserves. These currencies are expressed in US dollar terms and any movement in the greenback against the currencies is reflected in the valuation of reserves.
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Forex reserves were down $44 billion as compared to March 31, 2022, and were lower by $72 billion on a year-on-year basis.
The reserves had improved by $34 billion during the past five weeks put together. The RBI had net sold $33.42 billion till September, Parliament was informed earlier. Forex reserves started declining after the greenback gained on account of the rate hikes by the US Federal Reserve from March onwards, which was compounded by geopolitical tensions in Ukraine.
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Forex reserves had fallen to their lowest levels since July 2020 to $528 billion for the week ended October 14, from an all-time high of $645 billion in October 2021.
The US Fed last week raised rates by 50 basis points to the 4.25%-to-4.5% range. With more rate hike coming in the next calendar year and anticipation of a slowdown, the dollar is likely to remain strong going forward, Bank of Baroda said in a report.