The foreign exchange reserves fell to $584.742 billion on October 6, the lowest level in more than five months, from $598.897 billion on September 1.
Due to a loss in valuation and RBI intervention in the currency spot market to stop the rupee’s drop against the dollar, the country’s foreign exchange reserves have fallen by $14.154 billion in roughly a month.
The foreign exchange reserves fell to $584.742 billion on October 6, the lowest level in more than five months, from $598.897 billion on September 1.
A significant portion of the total forex reserves, known as Foreign Currency Assets (FCA), have decreased by $11.162 billion over this time, while the value of gold reserves has decreased by $2.633 billion.
According to Anindya Banerjee, Vice President (Currency Derivatives & Interest Rate Derivatives) at Kotak Securities Ltd., “the fall in (forex) reserves is due to selling of dollars by the RBI to support the rupee and also because of the impact on valuation as the dollar has strengthened.”
The strengthening of the dollar index and rising US bond yields have caused outflows from India, which has resulted in the depreciation of the rupee.
“The US Fed repeatedly asserts that interest rates are likely to remain higher for a longer period of time, which raises the yields on US government bonds. The dollar index is still strong and is significantly higher than 106 points. According to Dipti Chitale, Director of Mecklai Financial Services Pvt. Ltd, a consulting firm specializing in treasury risk management, this is something that is supporting the US dollar.
Michael Patra, the deputy governor of the RBI, stated last week that value changes rather than a persistent decline are mostly to blame for the movements in the reserves.
“If you knock out the valuation changes as we do in the balance of payments (BoP), you will see there is an increase of $24 billion (in forex reserves) in a quarter,” Patra stated in a news conference following the October monetary policy announcement.
Although they are denominated in US dollars, foreign exchange reserves are kept as a multi-currency portfolio that includes popular currencies like the US dollar, Euro, Pound Sterling, and Japanese Yen, among others. The value of other currencies relative to the US currency decreases when the dollar appreciates, which results in a nominal loss in the position of the world’s forex reserves.
The 10-year benchmark securities of the US and UK are two examples of the dollar-denominated assets in which the RBI retains its foreign exchange reserves. The increase in the yield on 10-year notes over the past several weeks has had an effect on the nation’s foreign exchange reserves.
The rupee lost value against the dollar, falling from 82.689 on September 1 to 83.118 on October 6. On September 7, the local currency dropped to an all-time low of 83.22.
Foreign portfolio investors (FPI), who had been net buyers of domestic equities for the first five months of fiscal 2024, net sold Rs 14,768 crore of local shares in September. Up till October 13, foreign investors sold domestic stock worth Rs. 9784 crore.
The RBI had to sell dollars to stop the rupee from reaching a new all-time high as a result of greater outflows, according to participants in the foreign exchange market.
The RBI has consistently insisted that its goal in intervening in the foreign exchange market is to curb excessive volatility, stabilize market expectations, and establish a stable exchange rate regime.
