India's forex reserves drop $5.9 bn in a week as RBI sells dollars

India’s foreign exchange reserves declined $5.9 billion to $590.59 billion for the week ended June 17, latest data released by the Reserve Bank of India (RBI) showed.

The fall in total reserves was mainly because of a decline in foreign currency assets worth $5.4 billion, the data showed.

In two weeks, the country’s foreign exchange reserves have dropped over $10 billion as the central bank stepped up intervention in the foreign exchange market. The RBI has been selling dollars to curb excessive volatility in the exchange rate and prevent runaway depreciation in the rupee. Reserves depleted by $4.6 billion in the previous week.

Most emerging market currencies have faced pressure since the start of the war in Ukraine in late February as investors rush for safe-haven assets. The rupee has declined close to 5 per cent against the dollar in 2022.

Since February 25, the headline foreign exchange reserves have declined by $40.94 billion.

The foreign exchange reserves touched an all-time high of $642 billion for the week ended September 3. That amount was equivalent to 14-15 months of imports for 2021-22.

The current level of foreign reserves is enough for less than 10 months of imports projected for 2022-23.

“There definitely seems to be RBI intervention as of now, particularly in May and June. Because absent that, we should have seen large net outflows,” said Ananth Narayan, associate professor at S P Jain Institute of Management and Research.

So far in June, overseas investors have net sold Rs 45,841 crore worth of Indian equities, NSDL data showed.

IFA Global’s CEO Abhishek Goenka, too, said the latest weekly decline was reflective of the RBI expending reserves to curb market volatility rather than owing to factors such as revaluation.

The rupee, which weakened past the 78/$1 level earlier this month, fell to an all-time low of 78.39/$1 on Wednesday. After trading in a thin band, the domestic currency settled at 78.34/$1 on Friday as against 78.31/$1 at previous close.