Forex Fluctuation: India's Foreign Exchange Reserves Decline $1.32 Bn to $593.75 Bn

India’s forex reserves dropped by $1.32 billion to $593.75 billion for the week ended June 9, according to the Reserve Bank of India’s (RBI) latest data. The overall reserves had jumped by $5.93 billion to $595.067 billion for the previous reporting week.

In October 2021, the country’s forex kitty had reached an all-time high of $645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments.

Anil Kumar Bhansali, head (treasury) and executive director of Finrex Treasury Advisors LLP, said, “The forex reserves have been volatile in the past four weeks jumping up to $599 billion and then falling to $590 billion and again moving up to $595 billion and now falling to $594 billion. The volatility is mainly caused by a change in valuation of gold and other currencies as also dollar selling by the RBI above 82.50 levels.”

For the week ended June 9, the foreign currency assets, a major component of the reserves, decreased by $1.128 billion to $525.073 billion, according to the Weekly Statistical Supplement released by the RBI on Friday, June 16.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Gold reserves dropped by $183 million to $45.374 billion, the RBI said. The Special Drawing Rights (SDRs) were up by $2 million to $18.187 billion, the apex bank said. The country’s reserve position with the IMF was down by $8 million to $5.115 billion in the reporting week, the apex bank data showed.

On the rupee movement, Finrex Treasury Advisors’ Bhansali said the domestic currency opened at 82.44 and remained in appreciative mode during the week ended June 16 despite a hawkish pause by the US Fed and a trade deficit of $22.12 billion in May 2023 against $15.24 billion in the previous month.

The dollar index (DXY) fell to 102.18 levels as Euro, GBP and JPY all gained while Asian currencies including Yuan gained against the dollar. Today’s closure at 81.93 will be a 49-day high for the rupee.

“The rupee is expected to be in an appreciative mode in the coming week as the dollar index falters to below 102 and the rupee is expected to be within a range of 81.50 to 82.25. BOE meeting and RBI meeting minutes are the major data which are expected to be released in next week,” he said.