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RBI intervention to defend rupee weights: Forex reserves plunge to lowest in over 20 months

Foreign exchange reserves decline by $7.54 billion to $572.71 billion

RBI intervention to defend rupee weights: Forex reserves plunge to lowest in over 20 months
Forex reserves have plummeted by nearly $70 billion from the record high of $642.45 billion registered on September 3, 2021

With the rupee remaining under pres-sure, India’s foreign exchange reserves fell by another $7.54 billion to $572.71 billion, the lowest in over 20 months, for the week ended July 15 amid appreciation of the dollar and capital outflows, triggered by the rise in inflation and rate hikes by the US. The reading is the lowest since Novem- ber 6, 2020. In the first two weeks of July, the Reserve Bank of India saw its reserves falling $15.5 billion, most of it defending the currency.

Forex reserves have plummeted by nearly $70 billion from the record high of $642.45billionregisteredonSeptember 3, 2021. A major reason for the decline is capital outflows by foreign portfolio investors (FPIs) as the US Federal Reserve started the monetary policy tightening and interest rate hikes. The valuation loss, reflecting the appreciation of the US dollar against major currencies and decline in gold prices have also played a part in the decline in foreign exchange reserves.

Forex reserves have fallen by $20 billion in the three weeks ended July 15. Foreign investors have taken out Rs 2.27 trillion from the capital markets since January, putting pressure on the rupee and the forex kitty. The RBI said it has been selling dollars from the forex kitty to defend the rupee. “In recognition of the fact that there is a genuine shortfall of supply of forex in the market relative to demand because of import and debt servicing requirements and portfolio outflows, the RBI has been supplying US dollars to the market to ensure that there is adequate forex liquidity,” RBI governor Shaktikanta Das said on Friday, admitting that the RBI was selling dollars to defend the rupee.

After all, this is the very purpose for which we had accumulated reserves when the capital inflows were strong, Das said on RBI intervention to prop up the rupee.

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