India's foreign exchange reserves go down by $5 billion in the week ending on July 1st

11 Jul 2022 , 10:34 AM

The rupee fell to a record low of under 79 to the dollar in the week ending July 1, depleting India’s foreign currency reserves by $5 billion as foreign portfolio investors continued to sell their holdings in local stocks.

On July 6, the Reserve Bank of India took action to entice capital inflows in response to the rupee’s decline, but experts predicted that it would take some time for the measures to correct the demand-supply imbalance in foreign currencies.

According to figures from the RBI, the reserves were $588.314 billion as of July 1. Out of this, foreign exchange assets were $524.745 billion, while gold reserves were worth $40.422 billion. The International Monetary Fund retains the remaining amount as reserves and special drawing rights.

Nearly $55 billion more has been lost in reserves since their peak of $642.453 billion on September 3 of last year. Since February, the central bank has spent more than $46 billion defending the currency.

FPI outflows from India totaled $28.5 billion up through June 22 of this year, which was consistent with the pattern in other emerging countries amid mounting worries about a global economic slowdown.

The RBI’s efforts to draw in debt capital, according to Barclays, are fundamentally sound but may take some time to take effect given that the enormous persistent current account deficit, not merely capital outflows, is the main source of pressure on the currency.

Rahul Bajoria, an economist at Barclays, stated earlier this week that “the underlying pressure on the foreign exchange may endure for some time, potentially until there is a major correction in commodities prices.”