India’s Forex Reserves Fall Below $600 Billion, Lowest In a Year

For the first time in a year, India’s foreign exchange reserves fell below $600 billion, weighed down by persistent capital outflows and rupee weakness fueled by the dollar’s recent broad surge.

The Reserve Bank of India’s (RBI) latest data for the week ending April 29 showed the country’s foreign exchange reserves fell by $2.695 billion to $597.728 billion, marking the eighth week of declines. The country’s import cover last fell below $600 billion in the week ending May 28, 2021.

The latest data was also the lowest since late April last year, when the country was in the midst of its worst coronavirus outbreak. In response to a deadly second surge in infections, hospitals across the country were scrambling for beds and oxygen; the World Health Organization (WHO) said in a report that India accounted for nearly half of the coronavirus cases reported worldwide and a quarter of the deaths during that time period.

However, the fallout from the Russia-Ukraine conflict has weighed on global supply chains this year, causing runaway inflation and forcing major central banks to tighten policy.

Since Russia invaded Ukraine on February 24, India’s forex reserves have dropped nearly $34 billion, or about 5.4 percent. That import cover was depleted in just two months, roughly the same time it took the country to build in a year.

The drop in foreign exchange reserves began the week of March 11, when the rupee hit all-time lows.

Dollar sales by state-run banks, suspected on behalf of the central bank, capped further rupee weakness, according to Sriram Iyer, Senior Research Analyst at Reliance Securities.

“The Indian rupee depreciated this week against the US dollar as risk appetite weakened amid mounting concerns about inflation, which could prompt more aggressive rate hikes by global central banks,” he added.

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