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India’s forex reserves fall $2.40 billion to 3-month low of $560 billion

According to data from the Reserve Bank of India, the country’s foreign exchange reserves declined by $2.397 billion to $560 billion as of March 10, 2023. This marks a three-month low for India’s foreign exchange reserves after they had increased for the first time in five weeks to $562.40 billion as of March 3.

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The Downfall of Forex Reserves

  1. The data shows that India’s foreign currency assets also decreased by approximately $2.2 billion to $494.86 billion. This includes the effect of appreciation or depreciation of non-US units, such as the euro, pound, and yen, held in the foreign exchange reserves.
  2. In addition, India’s gold reserves and SDR holdings saw a reduction on March 10, with both reserves falling by $110 million and $53 million, respectively. India’s gold reserves and SDR holdings now stand at $41.92 billion and $18.12 billion, respectively. The country’s reserve position in the International Monetary Fund (IMF) also fell by $11 million, taking it to $5.1 billion.

More about the news

The RBI has intervened on multiple occasions to protect the rupee from 83 levels over the last few weeks, holding the currency in a tight band. The central bank intervenes in the spot and forwards market to prevent extreme fluctuations in the rupee’s exchange rate against the dollar. The RBI has stated in the past that changes in reserves can also result from valuation gains or losses. Last week, the rupee depreciated by 0.1% against the dollar due to the banking crisis in the United States, with the currency trading in a range of 81.6150 to 82.2975.

Why Rupee is falling?

India’s reserves have been declining due to the pressure on the rupee and the central bank’s measures to defend the currency from extreme volatility. In 2022, the cost of defending a falling rupee was more than $115 billion of the reserves. The largest decline in reserves occurred during the week ending on February 10, when the reserves dropped by $8.32 billion to $566.95 billion. In October 2021, India’s foreign exchange reserves had reached an all-time high of $645 billion.

On Friday, the rupee settled 18 paise higher at 82.58 against the US dollar. However, the ongoing turbulence in the banking sectors of the United States and Europe may make the Reserve Bank of India more willing to let the rupee weaken below a key psychological level, according to analysts.

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