India’s foreign exchange reserves fell by $5.2 billion to $545.65 billion in the week ended September 16, logging a seventh consecutive weekly decline, according to data released by the Reserve Bank of India (RBI) on September 23.
The reserves are at their lowest level since October 2, 2020.
The more than $5 billion drop in reserves last week was largely due to a $4.7 billion drop in foreign currency assets to $484.90 as on September 16.
The drop in the foreign exchange reserves comes at a time when the rupee’s exchange rate has depreciated sharply against the US currency.
The local unit sank to a new low of 81.26 against the dollar on September 23, down from 80.87 at the end of the previous session, as per Bloomberg data.
The rupee has been under severe pressure in 2022 following the Russia-Ukraine war, which began in late February.
The war accentuated concerns of inflation across economies amid supply-side constraints as commodity prices surged globally.
Central banks, including the US Federal Reserve, have begun to hike interest rates aggressively to quell inflationary pressures.
The rise in commodity prices, including that of oil, has led to a rapid widening of India’s trade deficit, which has resulted in the deterioration of the reserves.
The outflow of foreign capital on account of risk-off sentiment and the tightening of monetary policy globally have fuelled the rupee’s depreciation.
The Indian currency breached the 80-to-a-dollar mark for the first time in July, the same month the RBI sold nearly $39 billion on a gross basis to defend the currency’s fall, the most it has ever done in a month.While the RBI has maintained that it does not target a level for the rupee’s exchange rate, it intervenes in the foreign exchange market to reduce exchange rate volatility.