India’s foreign exchange reserves declined by $9.98 billion to $671.63 billion in the week ended June 12, marking the steepest weekly drop since the week ended March 27 of the current year, according to the latest data released by the Reserve Bank of India (RBI). The reserves have fallen by $56 billion since the start of the West Asia conflict in late February.
The decline during the reporting week was primarily driven by a sharp fall in gold reserves. RBI data showed that the value of gold holdings fell by $10.75 billion during the week.
Market participants said the fall in reserves was largely on account of revaluation losses due to a decline in gold prices, even as the central bank made modest dollar purchases during the period.
Gold prices fell 2.87 per cent to $4,204 per ounce during the reporting week.
Foreign currency assets (FCAs), the largest component of the country’s foreign exchange reserves, increased by $846 million during the same period to $544.3 billion.
“Forex reserves declined mainly due to revaluation losses as gold prices fell during the week,” said a market participant. “The RBI did buy dollars, but the quantum was very small,” the person added.
The Special Drawing Rights (SDRs) component fell by $66 million to $18.7 billion during the week. India’s reserve position with the International Monetary Fund (IMF) also decreased by $11 million to $4.82 billion.
The foreign exchange reserves had hit a record high of $728.49 billion in the week ended February 27 of the current year. Since then, total reserves have declined by around $56 billion due to the RBI’s intervention in the spot and forward rupee markets to smooth currency volatility amid global uncertainty and geopolitical tensions.
The latest data showed that the RBI’s net short forward book stood at $95.3 billion at the end of April, after touching a record $103.1 billion in March.
The rupee depreciated 0.18 per cent against the US dollar during the reporting week, even as the dollar index eased by 0.3 per cent over the same period.
The domestic currency, however, recovered this week amid sustained foreign inflows and a fall in crude oil prices. The rupee appreciated 0.82 per cent during the week and erased its losses for the current financial year. It was trading 0.51 per cent stronger against the dollar compared with its level at the beginning of the current financial year.
So far in June, the rupee has gained 0.71 per cent against the greenback.
The rupee settled at 94.33 per dollar on Friday, almost unchanged from the previous close of 94.34 per dollar. The local currency appreciated 0.82 per cent during the week ended Friday.
Dealers said the central bank has recently resumed dollar purchases as inflows into domestic markets improved. The RBI is estimated to have bought more than $5 billion over the last three trading sessions, helping rebuild reserves while gradually reducing reliance on its large short-dollar forward position.
“The fall in crude prices, along with FPI inflows, might help the rupee appreciate to 94 per dollar. Resistance is seen near 94.10 per dollar,” said a dealer at a state-owned bank. “The RBI has been buying dollars and absorbing part of the inflows; hence, the rupee is not expected to appreciate sharply,” he added.
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