India’s forex reserves fall below $600 billion in late April, if bearish trend continues
India’s foreign exchange reserves have fallen more than $30 billion since Russia invaded Ukraine on February 24, and if the recent trend continues, it will fall below $600 billion in April.
India’s import coverage has fallen for seven weeks in a row.
According to the Reserve Bank of India’s weekly statistical supplement data, it is down nearly 5 percent or $31.104 billion since the February 25 weekly data.
During this period, India also witnessed the steepest weekly dip in foreign exchange reserves ever – reaching nearly $12 billion in the week ending April 1.
For the last reported week, April 22, the country’s forex reserves fell $3.271 billion to $600.423 billion in the week ending April 22, compared with $631.527 billion reported for the week of February 25.
Russia invaded Ukraine on February 24, in what Moscow calls “a special operation in Ukraine,” and the West called it the most important attack on a European state since World War II.
It took India nearly a year to build its foreign exchange reserves to more than $630 billion, but the global energy crisis from the war in Ukraine has eroded the country’s currency and import coverage, wiping out more than $30 billion.
That suggests the RBI will continue to sell dollars to prevent the rupee’s value from falling amid the ongoing conflict between Russia and Ukraine.
Indeed, the rupee has fallen as the dollar has risen for more than two decades as a result of aggressive stances by the US Federal Reserve to combat more than 40 years of high inflation.
While currency weakness generally benefits exports, this equation may not hold true when inflation is high and rising, which is the current global scenario.
The double whammy from the weakening of the rupee and the rise in crude oil to over $100 a barrel has weighed on India as it relies on imports for 85 percent of its oil needs.
The rule of thumb is that a firmer dollar makes dollar-denominated commodities more expensive for consumers using other currencies, ultimately reducing demand and prices.
But the energy crisis of the Russia-Ukraine crisis has not abated. In any case, it has escalated further after Russia turned off its gas taps to Eastern Europe and demanded ruble payments in response to Western countries’ sanctions against Moscow.
What started as the worst-case scenario of increasing external balances, imported inflation and higher interest rates is quickly becoming a baseline for India.
The dollar’s race to its highest point in two decades is leaving a trail of destruction, exacerbating inflation in other countries and tightening financial conditions, just as the global economy faces the prospect of a slowdown in growth.
The dollar’s 8% gain against a basket of currencies this year is partly due to bets that the US central bank will raise interest rates faster and further than other developed countries and partly to its status as a safe haven in times of turbulence. .
