The country’s foreign exchange reserves declined by over $15 billion in February as the Reserve Bank intervened in the forex market to stem a fall in
The country’s foreign exchange reserves declined by over $15 billion in February as the Reserve Bank intervened in the forex market to stem a fall in the rupee, which came under pressure due to gains in dollar on rate hike concerns US Federal Reserves.
The valuation loss on account of dollar appreciation against the major currencies also led to erosion in the country’s foreign exchange reserves during the month.
In the week ended February 17, 2023, the forex reserves dropped by $ 5.68 billion to an 11-week low of $ 561.267 billion. This was the third consecutive week when the reserves dropped. In the week ended February 10, they declined by $8.32 billion and by $1.49 billion in the week ended February 3, the RBI data showed.
“RBI has been intervening a lot, both in the domestic spot market and offshore market, because the rupee came under quite a bit of pressure due to the realignment of the expectations about what the US Fed would do. If the RBI wouldn’t have intervened, the rupee would have crossed 83 levels,” said Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank.
So far in this month, the rupee has fallen by 81 paise. It depreciated to 82.75 on February 24 from 81.94 on February 1, 2023.
The US Federal Reserve raised its interest rate by 25 basis points to 4.75 per cent in the meeting held on February 1 to maintain price stability. The consumer price inflation in the US eased in November and December but remained elevated, indicating that the interest rates will be hiked further, a forex market participant said.
During the month, the foreign currency assets (FCA), which is the major component of the overall reserves, dropped by $14.11 billion.
FCA is maintained as a multi-currency portfolio comprising major currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc and are valued in terms of US dollars. When the dollar appreciates, it impacts these major currencies, resulting in valuation loss in forex reserves.
“Dollar is up two-three per cent against major currencies which has impacted the RBI’s forex reserves,” said Anindya Banerjee, Vice President (Currency Derivatives & Interest Rate Derivatives) at Kotak Securities Ltd.
Forex market participants said the rupee will continue to be under pressure in the near term. The RBI would not be comfortable with sharp movements in the rupee and so, it will continue to intervene in the forex market, which could further decline the country’s reserves position.
indianexpress.com