Forex reserves slip from $600 bln mark after declining two weeks in a row - Financial Daily News Site

Forex reserves slip from $600 bln mark after declining two weeks in a row

India’s foreign exchange (forex) reserves extended declined for the second consecutive week ending June 10, 2022. RBI’s data on Friday showed that forex reserves have erased the $600 billion mark due to a massive decline in foreign currency assets. All components in the reserves witnessed a drop in the week under review. 

In the week ending June 10, India’s forex reserves stood at $596.458 billion – declining by $4.599 billion compared to reserves of $601.057 billion in the previous week.

Forex reserves had dropped by $306 million in the week ending June 3, while the reserves recorded a rise of $3.854 billion in the week ending May 27 this year.

Further, in the week ending June 10, foreign currency assets fell by $4.535 billion to $532.244 billion from the previous week.

The foreign currency assets are the major component of the forex reserves.

Gold reserves tumbled by merely $1 million to $40.842 billion, while Special Drawing Rights (SDR) plunged by $23 million to $18.388 billion compared to the previous week. Meanwhile, the reserve position in IMF dived by $40 million to $18.388 billion in the week ending June 10 against the previous week.

On Friday, the rupee closed at 78.05 advancing by 5 paise against the dollar index at the interbank forex market amidst subdued demand in domestic equities, persistent foreign funds outflow, a strong greenback, and higher crude oil prices.

The Indian currency opened strong at 78.03 per dollar and even touched an intraday high and low of 78.02 and 78.10 against the American currency.

The rupee is vulnerable as fear of recession escalated amidst soaring multi-year high inflation and aggressive monetary policy tightening on a global level.

Earlier this week, Yes Bank’s ecologue report dated on June 13 said, stated that Indian rupee could edge closer to 80 by end of March 2023.

Yes Bank analysts Indranil Pan, Radhika Piplani, and Deepthi Mathew in the ecologue said, “Global currency markets have been witnessing significant volatility as it navigates the complexities of global monetary policy cycle amid inflationary pressure. With other G4 nations catching up to US Fed’s tightening cycle, the theme could now shift to understanding the risks of a “hard-landing” for the global economy. We see USD firmness to continue amidst risk aversion. India’s domestic fundamentals are also weakening and it is facing a twin deficit problem, though not of the same scale as seen during 2013 “taper tantrum” episode.”

“Even as a tighter monetary policy will provide some support, we expect USD/INR to remain on a depreciating path and weaken to 79.50 by end-FY23,” the trio said.

On the markets condition and outlook, Vinod Nair, Head of Research at Geojit Financial Services earlier today said, “Rising inflation and policy tightening by global central banks are forcing the market to discount the possibilities of recession. With central banks’ policy tone pointing towards continued rate hikes of higher magnitude, we can expect FIIs to maintain their selling spree. The domestic market will continue to trade with high volatility in the near term, however, the ongoing corrections are opportunities in disguise on a medium to long-term investments.”

So far in 2022, foreign portfolio investors have pulled out a whopping 1,98,585 from the equities market, as per NSDL data. The overall outflow (including equities, debt, debt-VRR and hybrid market) stood at 2,08,587 crore in India.

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