In the week ending March 10, the Reserve Bank of India’s foreign exchange reserves decreased by $2.4 billion, bringing the total to $560 billion.
This drop was primarily due to a $2.2 billion decline in the bank’s foreign currency assets, which amounted to $494.86 billion in the preceding week. Additionally, the rupee depreciated by 0.1% against the US dollar during this period.
For four consecutive weeks prior to this, the RBI’s foreign exchange reserves had remained stable and even increased by $1.5 billion during the week ending March 3.
However, currency dealers suggest that the bank has been selling US dollars in the past six weeks to mitigate any significant volatility in the rupee’s exchange rate.
Since February, the rupee has been under pressure due to concerns about possible interest rate hikes by the US Federal Reserve.
Despite recent speculation that the Fed may slow down its rate hikes after the Silicon Valley Bank‘s failure in California, the rupee has not seen much appreciation as investors continue to flock to the US dollar amid global risk aversion.
As per the central bank’s February Bulletin, the country’s foreign exchange reserves were $576.8 billion as of January 27, 2023, enough to cover 9.4 months of anticipated imports for the current fiscal year.
The RBI had been a net seller of US dollars in the currency market from June to October of the previous year, aiming to stabilize the rupee’s exchange rate amidst the Ukraine conflict and the Federal Reserve’s aggressive rate hikes.
However, the foreign exchange reserves have grown by $28.9 billion since the end of September, reaching $561.6 billion as of January 6.
“Reserve Bank of India’s foreign exchange reserves drop by $2.4 billion, rupee under pressure”