India’s forex reserves set to hit 2-year low

Central bank has drawn down reserves by $100b to defend rupee

BENGALURU:

India’s depleted foreign exchange reserves are likely to drop further, reaching their lowest level in over two years by the end of 2022, as the Reserve Bank of India (RBI) continues to defend the rupee from the mighty dollar’s rise, a Reuters’ poll found.

In a battle that has so far failed to staunch the rupee’s fall to a record low against the greenback, the RBI has drawn down its foreign exchange reserves by nearly $100 billion to $545 billion from a peak of $642 billion a year ago, and more is coming.

Those reserves are forecast to fall another $23 billion to $523 billion by the end of this year, according to the median forecast from a September 26-27 Reuters’ poll of 16 economists. If realised, that would be the lowest level in over two years.

Forecasts were in a $500-540 billion range that suggests the RBI will run down forex reserves at a rate last seen during the global financial crisis of 2008, when they fell over 20%.

It has already burnt reserves at a much quicker pace than during the taper-tantrum period in 2013 when the US Federal Reserve suddenly cut government bond purchases.

Published in The Express Tribune, September 29^th, 2022.

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