The drop in reserves during the reporting week was mainly due to the foreign currency assets (FCA) declining by $11.108 billion
India’s foreign exchange reserves declined by a whopping $9.646 billion in the week ended March 11, 2022. This is probably the single steepest weekly fall in the forex reserves so far.
This drop in reserves came amid State-run banks selling dollars (USD) reportedly on behalf of the Reserve Bank of India (RBI) on March 7 to keep the Rupee from breaching the 77 per USD mark as crude oil prices surged beyond $120 per barrel, foreign portfolio investors pressing the exit button from equity markets, and global financial markets witnessing volatility in the backdrop of the Russia-Ukraine war.
During the reporting week, the Rupee (INR) had closed at an all time low of 76.96 per USD on March 7th. The Indian unit, however, closed the week at 76.59 per USD on March 11.
The forex reserves stood at $622.275 billion as at March 11, 2022. The drop in reserves during the reporting week was mainly due to the foreign currency assets (FCA) declining by $11.108 billion.
Foreign currency assets comprise multi-currency assets (securities, deposits with other central banks & BIS, and deposits with with commercial banks overseas) that are held in multi-asset portfolios.
The only component of the forex reserves that increased was gold, which was up $1.522 billion during the reporting week.
The other two components of the reserves declined — Special Drawing Rights (by $53 million) and Reserve Position in the IMF ($7 million) — during the reporting week.
In a recent address, RBI Deputy Governor MD Patra, said: “Perhaps the greatest strength of India’s external sector is the buffer provided by the holdings of foreign exchange reserves. The level of reserves has risen from 16.0 per cent of GDP at end-March 2013 to the current level of 20.5 per cent.
“The import cover provided by the reserves on a prospective basis has doubled while short-term external debt on a residual maturity basis has declined over the same period from 59.0 per cent of reserves to 40.3 per cent.”
Patra emphasised that it is comforting that India currently has the fifth largest holdings of international reserves in the world.
“In fact, India’s international assets cover three-fourth of India’s external liabilities, including debt, equity and all other forms of contractual obligations. In addition, there are second lines of defence in the form of forward assets and swap lines,” he said.
Published on March 18, 2022