India's FX reserves hit 20-month low after $7.5-billion fall in week ended July 15

(Representative image: Reuters)

India's foreign exchange reserves fell to the lowest in just over 20 months after they slumped by $7.54 billion in the week ended July 15 to $572.71 billion, data released by the Reserve Bank of India (RBI) on July 22 showed.

The last time the foreign exchange reserves were lower was as on November 6, 2020.

The continued and sharp fall in the reserves is a reflection of the central bank's intervention in the foreign exchange market to stem the Indian currency's fall, which has hit multiple all-time lows against the US dollar over the last few weeks.

On July 19, the rupee's exchange rate versus the greenback crossed the 8o-per-dollar mark for the first time.

While the RBI works with no fixed level of exchange rate, it aims to reduce volatility in both directions - something Governor Shaktikanta Das reiterated on July 22 at an event.

In his speech, Das said the RBI will "continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals", adding that the central bank had "zero tolerance for volatile and bumpy movements".

While the RBI has maintained it has adequate level of foreign exchange reserves to handle the spillovers from global developments, including capital outflows in reaction to geopolitical tensions, rising interest rates in advanced economies, and a widening trade deficit, there has been a big drop in reserves over the past few months.

The latest level of foreign exchange reserves is nearly $70 billion down from their peak of $642.45 billion, achieved on September 3, 2021.

Since Russia's invasion of Ukraine, the foreign exchange reserves have fallen by $60 billion. Despite the dollar sales by the central bank, the rupee has weakened by 6.7 percent against the dollar over the same period.

In addition to slowing the rupee's fall by selling dollars, the RBI earlier this month announced measures - both short and long term - to encourage foreign inflows, including allowing the settlement of foreign trade in rupees.