The country’s foreign exchange reserves fell $8.3 billion to $566 billion in the week ended February 10, as per data released by the Reserve Bank of India (RBI) on Friday. This is the sharpest decline in India’s forex reserves in the last 11 months after it fell by $11.2 billion in the week ended April 1.
The decline in the reserves in the week ended February 10 was chiefly on account of foreign currency assets, which fell $7.1 billion to $501 billion. The RBI holds major currencies, including the pound sterling, yen and euro in its reserves, which are expressed in dollar terms.
The value of gold reserves in US dollar terms also fell $919 million to $43 billion while SDRs fell by $190 million to $18 billion, the RBI data showed.
On a year-on-year basis, reserves were down by $63 billion and $40.4 billion compared to March 31, 2022. The Indian currency depreciated by 1.1% from February 1-15. on account of a stronger dollar, weakness in domestic equity markets and foreign portfolio investor (FPI) outflows.
The reserves are impacted mainly because of movement in the US dollar and intervention of the RBI to restrict the volatility in the currency market through sale or purchase of forward contracts.
Unlike last year, the probability of any runaway appreciation in the dollar remain low, Aditi Gupta, economist, Bank of Baroda said in a report. The balance of payments dynamics and stable oil prices are likely to work in favour of the domestic currency.
India’s trade deficit fell to a 12-month in January as imports declined more sharply than exports while services exports remained buoyant. Additionally, FPI flows, though negative, may also end FY23 on a positive note, she said.