Indian Foreign Reserves: Big decline in India’s foreign exchange reserves, the real reason behind it came to the fore
Highlights
- Big fall in India’s forex reserves
- The main reason for the decline is the depletion of foreign currency assets (FCA) and gold reserves.
- Ukraine-Russia war is also the reason
Indian Foreign Reserves: The country’s foreign exchange reserves declined by $ 6.687 billion to $564.053 billion in the week ended August 19. Reserve Bank of India (RBI) has given this information. Earlier, in the week ended August 12, foreign exchange reserves were down by $ 223.8 million to $ 570.74 billion.
The real reason behind this is the depletion of gold reserves.
According to the weekly data released by the Reserve Bank on Friday, the main reason for the decline in foreign exchange reserves during the week ended August 19 is the reduction in foreign currency assets (FCA) and gold reserves. According to weekly figures, FCAs fell by $5.77 billion to $501.216 billion. According to the data, the value of gold reserves declined by $ 704 million to $39.914 billion. During that period, Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) declined by $146 million to $17987 billion. While the country’s currency reserves kept in the IMF also fell by $ 58 million to $ 4.936 billion.
What does RBI say?
There is also a sign of an economic slowdown in the world behind the decrease in foreign exchange reserves. The Reserve Bank of India is constantly trying to control it. His intervention has reduced the rate of depletion of foreign exchange reserves during currency market volatility. This is stated in the study of RBI officials. The study covers the current fluctuations caused by the Russo-Ukraine war since 2007. The central bank has a stated policy of interference in the foreign exchange market. The central bank intervenes if it sees volatility in the market. However, the Reserve Bank never gives a target level for the currency.
Ukraine-Russia war is the reason
The study by Saurabh Nath, Vikram Rajput and Gopalakrishnan S of the RBI’s Financial Markets Operations Department said that during the global financial crisis of 2008-09, reserves were down by 22 per cent. It has decreased by only six percent during the volatility generated after the Ukraine-Russia war. The study said that the views expressed herein are those of the authors and do not necessarily reflect the views of the central bank.
The Reserve Bank has been successful in achieving its intervention objective on foreign exchange reserves. This is reflected in the low rate of depletion of foreign exchange reserves. According to the study, in absolute terms, the global financial crisis of 2008-09 resulted in a decline of US$70 billion in reserves. Whereas during the Kovid-19 period it decreased by only $ 17 billion. At the same time, due to the Russo-Ukraine war, there has been a decrease of $ 56 billion till July 29 this year.
The major factors affecting volatility include interest rates, inflation, government debt, current account deficit, dependence on commodities, political stability as well as developments at the global level, the study said.
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